The pensions system largely functions well, some in the pensions industry have said in response to a governance consultation by the Department for Work and Pensions closing on Thursday but suggest extra rules around conflicts are needed. The Trades Union Congress meanwhile is calling for member representation on all trust-based schemes.

Responding to the consultation from mid-December, the Association of Consulting Actuaries said large schemes are effective but raised concerns about conflicts of interest in connection with defined benefit surpluses. Chair Stewart Grant Hastie warned about appointing connected firms and the employer’s power to appoint or replace a professional trustee.

 “The latter will become increasingly relevant when trustees have increased powers to distribute surplus to the employer,”

he said.

The ACA suggested a process for professional trustee or sole corporate trustee appointments that includes notifying the Pensions Regulator.

The pension schemes bill is set to allow surplus extraction from schemes if trustees agree, potentially allowing surplus extraction down to low dependency funding. The ACA’s concern is that sponsors could seek to put in place trustees that are more willing to release surplus. The incoming legislation means some companies with a DB scheme in surplus are becoming acquisition targets, while others are already looking at whether and how they can secure debt over pension surplus, suggesting some sponsors are keen to access pension buffers.

The Association of Professional Pension Trustees said accountability was central in trusteeship. Chair Rachel Croft added:

“While proportional regulation allows schemes to focus on substantive matters, regulatory demands can present challenges, especially for smaller schemes. We believe that the growing and now well-established professional trustee market continues to deliver substantial expertise and continuity, including facilitating improved strategic planning for complex transactions and long-term schemes.”

The APPT argues that potential conflicts for sole trustees are addressed with the Professional Corporate Sole Trustee code of practice, and is against restrictions on the number of appointments held by professional trustees, seeing monitoring, risk management and quality control as more effective than “fixed restrictions, which may inadvertently result in negative consequences”.  

It prefers strong principles and industry accreditation – with accreditation eventually becoming mandatory for professional trustees – to “arbitrary limitations or statutory regulation”.  

The Society of Pension Professionals agreed the current trusteeship framework is working well for the vast majority of members. It too is against limiting the number of trustee appointments or length of tenure, saying that “periodic independent governance reviews would provide a more effective safeguard”.

Jo Fellowes, who chairs the SPP’s Administration Committee, said:

“The UK’s trust-based pension system is fundamentally strong. The SPP believes that reform should build on what works, i.e. proportionate governance, professional expertise and clear accountability, rather than impose arbitrary restrictions.”

Among others, the SPP would instead like a

“clearer delineation between trustees and executive management, particularly in large master trusts and megafunds”.

The demise of MNTs may be a choice

As MNTs are not required to sit on trustee boards in a number of scheme and governance structures, the society is in favour of member advisory panels, surveys and impact assessments to ensure the member voice is heard.

The consultation itself admitted that

“with a more consolidated market there will inevitably be a move away from the traditional lay trustee board”.

However, MNTs are clear they do not see a move away from member representation on boards as ‘inevitable’. Member trustees are the only group with “skin in the game” in the decision making of the pension scheme and with no business interests in the process, said the Association of Member Nominated Trustees, warning this cannot be replicated in other ways. 

“They undoubtedly want what is best for members because it is best for them too,”

said Maggie Rodger and John Flynn, who co-chair the association.

They called for member representation across schemes to be mandatory, including on master trusts, megafunds and collective DC schemes. MNTs

“may be ‘lay’ to the pensions industry, but they often bring vital professional skills in areas such as HR, law and finance”,

they pointed out.

Trustee firm Independent Governance Group takes a different view, citing fiduciary duty. Louise Davey, trustee director and head of policy and external affairs at IGG, said:

“It is critical to remember that acting as the ‘voice of the member’ is not the solely preserved to lay trustees; acting in members’ interests is the duty of any trustee, and that includes effective communication and engagement.”

TUC recommends one-third member trustees on all boards 

The Trades Union Congress has now thrown its weight behind member representation across schemes, including multi-employer schemes. In a new report produced by policy researcher Daniela Silcock and published today, it recommends:

• minimum requirements for member representation at scale by requiring all trustee boards of trust-based pension schemes to include at least one-third member representation, regardless of scheme size or structure;
• encouraging governance structures that recognise the diversity of members in multi-employer schemes and are rooted in constituencies of workers based on characteristics such as the industry they work in; and
• minimum standards for support, training and resourcing “to ensure that representation is effective rather than symbolic”.

General secretary Paul Nowak said:

“Pension schemes deliver better outcomes for members – and ultimately a better quality of life in retirement – when those members have a say in how they are run. As the government looks to move to a system of fewer, bigger pension schemes, ministers should look to Australia and Canada to see how member representation can help to ensure those bigger schemes deliver better results. All workers deserve to retire in dignity. It is vital that pensions are governed fairly”.