Trustees, Scheme Governance and the Well-Run Pension Scheme

Posted on: 6th September 2011


The pensions world is complex and there is no doubt that it is becoming ever more so. There is no doubt, too, that The Pensions Regulator is becoming ever more active.

According to the Pensions Act and The Pensions Regulator (TPR), Trustees must have knowledge and understanding of their scheme’s documents, of the law of pensions and trusts and of the principles of pension scheme funding and investments.

Essentially, the principal job of the Trustees is to ensure that their pension scheme is run well.
And, of course, a well-run pension scheme can save valuable time and trouble and can help both the Trustees and the Employer to save time and money.

So, on the face of it, TPR, the Employer and the Trustees should all be in harmony on their thinking. However, as we know, this has not always been the case.

Trustee Knowledge and Understanding

From the beginning, TPR’s focus has been on ensuring that Trustees understand their duties and responsibilities under the law and that they gain the skills necessary to run their pension schemes well. With a view to facilitating this, TPR developed the Trustee Toolkit, to provide trustees with an online training facility.

But, of course, Trustee training needs to keep evolving as Trustees gain more knowledge and understanding and as they become more experienced. Though TPR’s Trustee Toolkit is a good starting point, particularly for those who favour online learning, it is just a starting point. Much more sophisticated and targeted training will be needed as Trustees’ knowledge and understanding grows and develops.

The problem with all of this is the time which needs to be spent and the resources which need to be found for this training, if Trustees are to build up a sufficient level of knowledge and understanding and if they are to obtain a good level of overall experience.

This can cause difficulties, particularly where Trustee are also company employees. In the current economic climate, many companies are, unfortunately, having to ask their staff to work harder and longer. And many businesses are having to manage with fewer resources than they have previously been used to.

In the light of these competing demands, it is not surprising that Trustees can sometimes feel that it is an impossible task to try to achieve the standards expected of them, within the constraints of the time and the resources available.

The Tasks List

Whilst TPR’s early focus was on ensuring that Trustees understood their duties and responsibilities under the law and that they gained the skills necessary to run their pension schemes well, more recently, TPR has moved on to issuing more detailed guidance and more stringent requirements, particularly in respect of scheme governance and scheme administration standards.

For example, TPR’s recent focus on membership data and the deadlines for complying with TPR’s requirements in that respect.

Additionally, in January of this year, TPR issued a communication recommending that Trustees consider their key tasks for the year ahead and that they be prepared, making sure that they are confident in their knowledge as Trustees to get the job done.

TPR said that Trustees’ key tasks may include:

  • Reviewing member records to ensure that they are up to date
  • Identifying potential risks and developing a risk register
  • Preparing the Trustees’ annual report
  • Reviewing the scheme’s investment strategy
  • Reviewing the employer covenant.

TPR subsequently issued further communications covering scheme administration, with information on record-keeping, data reconciliation and wind-ups.

Recent Developments

In June, TPR published its fifth governance survey, reporting on standards of governance and administration in occupational pension schemes. Whilst this showed gains in some areas, a number of schemes were still not confident that their overall governance was very effective. Communication to members was mentioned as still being a key area for potential improvement.

In spite of this, the general impression is that both Trustees and Employers would like to find a way to improve overall scheme governance and administration. And this makes perfect sense, because a well-run pension scheme can help to save time and money for all concerned. And good communications with members, particularly if they are also employees, will clearly bring its own benefits. The question is how can companies and Trustees achieve these improvements more quickly within the constraints of the time and the resources available to them?

Recent surveys have shown that the number of pension schemes appointing professional Trustees to join their Trustee boards has increased. There are a number of reasons for this. Because of a wish to use the professional Trustee’s experience to identify and manage potential conflicts of interest, because of the professional Trustee’s pensions technical knowledge and because of the expertise, breadth of experience and knowledge of best practice which a good professional Trustee can bring to the decision-making process.

So the question is how do you choose a good professional Trustee who will use their expertise to help you to achieve that elusive goal of a well-run pension scheme more quickly?

The best professional Trustees have worked in pensions for many years. They have gained extensive pensions and business experience, much of it at a very senior level. They have a relevant professional qualification and they are very experienced Trustees. A good professional Trustee is a bit like a non-executive Director, bringing their expertise and a wider perspective from having been involved with a number of pension schemes and therefore having extensive industry experience. Adding their knowledge and experience to that of the existing Trustee board can quickly strengthen the decision-making process.

Of course, a common concern of many employers is that their pension plan is already costing more than had been anticipated.

But the appointment of a good professional Trustee should not be seen as an additional cost. It should be a means of speeding up the journey to that all-important goal of a well-run pension scheme, to better decision-making and to saving valuable time and money. And better communications with members, particularly if they are also employees, will clearly bring its own additional benefits.

So, provided that you choose your professional Trustee carefully, this appointment, together with ongoing Trustee training, could be the faster route to a well-run pension scheme, to time and money saved and to a better night’s sleep for all concerned.

Featured in the September – October issue of Engaged Investor