Legislation too heavy a solution for raising TKU standards

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Thursday, 26 September 2019

In its response to The Pensions Regulator (TPR) consultation on the future of trusteeship and governance, Punter Southall Governance Services (PSGS) has pushed back on the need for increased legislation to improve standards of trustee knowledge and understanding (TKU). It highlighted the main concern appears to be poor practice in smaller pension schemes with small governance budgets and where adviser fees are kept to a minimum. Focus should be on improving governance in these schemes without adding to the burden for others that are already governed appropriately.

The leading professional trustee firm feels new legislation would add additional governance costs onto pension schemes and employers and put off lay trustees from undertaking the trustee role. PSGS feels clear recommendations delivered through regulatory guidance is more appropriate, with measures such as TPR monitoring whether trustees have undertaken the Trustee Toolkit with checks against this done on a comply or explain basis.

PSGS also believes closer engagement between TPR, the industry and professional bodies is part of the answer. Ensuring all trustees are aware of standards could be a formal part of the role of each adviser, the scheme secretary and (where appointed) the professional trustee. Establishing a TPR self-accreditation scheme for training may also help so industry can deliver formal training approved under one ‘TPR TKU’ brand.

Responding to questions regarding expectations for professional trustees, James Double, PSGS Director, said:

“There absolutely should be higher TKU expectations for professional trustees. What’s important, however, is most professional trustees have existing relevant professional qualifications and significant pension industry experience that need to be properly recognised within the TKU framework.

It isn’t helpful trying to achieve higher TKU standards for professional trustees by imposing additional qualifications that provide no evidence of a higher level of TKU than completing the TPR Toolkit. Relevant pension and professional qualifications could be accredited by TPR as appropriate for trusteeship. Evidencing ongoing CPD for such qualifications would also evidence compliance with a higher standard for ongoing TKU.”

The independent trustee firm doesn’t believe professional trustee appointments should be mandatory for all schemes as this wouldn’t be fair to those that are already very well governed and do not have a professional trustee. The firm also believes the standard of some professional trustees needs to be improved before any such measure can be properly considered.

Commenting on sole trusteeship, James Double said:

“We understand a sole trustee isn’t the answer for all schemes but it has been very beneficial to many, especially those at the smaller end of the market. We would argue a sole trustee is more beneficial than consolidation for these schemes.

The focus needs to move from seeing sole trusteeship as ‘bad’. For example, a recent meeting with the CFO of an overseas parent company resulted in a complete change in the CFO’s understanding and a shift in his view from wanting to consider a higher risk investment strategy to accepting the trustee’s more balanced risk strategy and discussing higher contributions to help reduce the risks further in the short to medium term. This shows having a close relationship with the employer in a sole trustee model is not necessarily a conflict. It can really help implement progressive strategy changes.

The word ‘sole’ doesn’t really help matters either as it can lead to the presumption only one person is involved. At least two experienced trustees are included in the team for each of our sole trustee appointments, along with experienced trustee support staff. One person is not doing work, dealing with the employer and taking decisions in isolation. Work is carried out by the team and, as is the case with every decision taken, is peer reviewed. It may be our formal process but is an excellent way to mitigate risks.”

PSGS’ response to TPR’s future of trusteeship and governance consultation can be viewed here: PSGS consultation response

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