This appeared on my blog yesterday. Here are Kate and Maggie..
My correspondent – Kate – is well known to this blog, she has been in charge of payroll at Marks & Spencer most of her career and now looks after people she made sure were properly paid – many thousands of them over time.
She is saying that when she’s done her time on the M&S Pension Board there may be a job to be done in a master trust (or superfund of multi-employer CDC) which consolidates the workplace pensions of many employers.
As it happens, I hope I am about to work with the first Trustee Director of the Legal & General master trust, the trust that Marks and Sparks used for those auto-enrolled into pension contributions in 2012. He wants to continue the job he started then “finishing the job” with CDC. I use that phrase because it has been recently used by the CEO of TPR and the Pensions Minister. The job that has to be finished involves paying pensions to those who have been saving them.
The other person mentioned in Kate’s comment is “Maggie” who with Kate runs the association of member nominated trustees. Here is the document produced by the AMNT.
Here is the link to it ; the document’s accessible at the bottom of the page
Sole Trustee Code; (for PCSTs)
To make things clear, the Association of Professional Pension Trustees (APPT) do not include member nominated or “lay” trustees. Their goal is for pensions to be governed by a Sole Trustee . Here is a statement from the APPT.
We first announced in October 2020 the publication of a code of practice setting out rigorous new standards for professional trustees carrying out sole trustee appointments.
The code of practice for Professional Corporate Sole Trustees (PCSTs), came into force on 1 January 2021, and set out a range of governance and risk controls that sole trustee firms must adhere to, in order to ensure that scheme members’ interests are properly protected.
These include a requirement for at least two accredited professional trustees to be involved in PCST decision-making processes, as well as new measures to ensure that PCSTs assess whether they should report to The Pensions Regulator if they are removed, or resign, from an appointment as a result of the sponsor company’s actions.
So which way should pension scheme go?
Schemes can either move towards a corporate sole trustee (PCST) and an end game or they can maintain the interests of members as essential, in which case the AMNT is vital to the strategy the scheme adopts.
This comes down to who is taking the risk. If the risk is being shipped off to an insurer through a buy-in and then a buy-out, it seems to make sense to use a corporate trustee to oversee the process of risk transfer.
If a pension scheme is looking to carry on, whether as a sponsor guaranteed defined benefit scheme or a CDC scheme where risks are shared by the members, then a member nominated lay trustee and representatives of members and employers should be on the trustee board.
This is why Pensions Mutual, the CDC scheme we are setting up is not using a Corporate Trustee and why we want members and employers to be represented on this multi-employer scheme.
We will work closely with the AMNT going forward as there is much in the 40 pages of their response to the DWP’s consultation which informs on what we want to do.
The AMNT consultation response
But surely it should be the Trustee Board who should make the decision as to whether to move towards DB scheme buy-out or not.
To purchase annuities is entirely an investment decision – are you using the scheme’s assets (including its capacity to receive further contributions from the employer) efficiently in passing them over to the insurer in return for the payment of a pre-determined pension benefit to each individual member? Doing so means the pension scheme has lost the potential benefit from the future investment return on its assets and also the benefit of pooling risks across its membership. The irrevocable nature of the decision means that it is vital that it is only taken after a reasonable and unbiased assessment of the future prospects for the Scheme, not reliant on the unthinking application of a single current or even historic market metric.
It is now apparent, albeit with the benefit of hindsight, that the decision to buy-out has unnecessarily cost UK employers £trillions and left members with impaired pension prospects. Surely an effective Trustee Board should be in the position to effectively challenge advisors who are suggesting that buy-in or buy-out is appropriate for the scheme. If professional Trustees see their role as expediting the buy out process then I would suggest that they are not being professional.
To operate effectively Trustee Boards for even the smallest schemes need multiple voices with as widely differing backgrounds and experience as possible, with every member feeling confident in their role to challenge advisors. “Lay” Trustees, whether Member Nominated or not, are essential to avoid the unthinking application of industry wide group-think to the particular scheme – and also to ensure that the Scheme is getting value for money in its administration costs.
It appears that this may be another area where legislators and regulators have been unduly influenced (perhaps because they had backgrounds in that area) by a particular industry promoting its role to the detriment of the wider economy.
“Lay” Trustees, whether Member Nominated or not, are essential to avoid the unthinking application of industry wide group-think to the particular scheme – and also to ensure that the Scheme is getting value for money in its administration costs.
It appears that this may be another area where legislators and regulators have been unduly influenced (perhaps because they had backgrounds in that area) by a particular” – Pension Oldie’s conclusion – mine too!
I think that putting a pension scheme in the hands of corporate trustees is like putting it in administration. Too often they do what the sponsor wants not what’s best for the members – talk about fiduciary responsibilities!
I agree Henry.
In many cases the employer had the legal capacity to wind up the Scheme and the role of the (sole) professional trustee may have historically been seen as one of implementing that decision. What I think we are both saying is that the Trustee’s fiduciary duty is to the Members and not the employer and being prepared to challenge the employer if it believes that decisions are not being made in the Members’ interests. In this respect, I believe the Pension Scheme Act significantly strengthens the Trustees’ power. For example in the House of Commons in reply to a question concerning indexation of pre 1997 benefits, Torsten Bell stated he expected Trustees to veto surplus refunds to employers who were using their discretionary powers to refuse to honour the promises made (“constructive obligations”) at the time of employment.
Equally I believe Trustees could challenge both the terms of the insurance company buy-out, or indeed whether the pension scheme should be transferred to another sponsor (e.g. a consolidator in whatever form) rather than having the liabilities bought out, if they believed that would be in the Members interest even if that reduced the surplus refunded to the employer.
The question is would Trustees whose experience is in insurance models and broking background of most in the current “pensions industry” have the confidence and worldly experience to challenge the perceived wisdom of the status quo?
“The question is would Trustees whose experience is in insurance models and broking background of most in the current “pensions industry” have the confidence and worldly experience to challenge the perceived wisdom of the status quo?” – this is a problem, I agree Pensions Oldie