Will ‘regulation overload’ mean no more MNTs?
2nd December, 2021
The Association of Consulting Actuaries (ACA) has published the second in a series of reports on the findings of its 2021 Pension Trends Survey. According to the latest report, the volume of regulatory and legislative change has led 76% of employers to say that they expect more trustees will consider resigning due to the scale of the new responsibilities they are expected to take on. It also found that 88% said they expect more schemes will struggle to find individuals prepared to take on trustee roles and, on a related note, 19% of employers were considering sole trusteeship to simplify governance.
Is this the end of the road for member nominated trustees (MNTs), or have we been here before?
Since 1993, there has been a new Act of Parliament on pensions, on average, every three years. Furthermore, whenever there is a new Act (primary legislation) then, as sure as night follows day, there will be a myriad of regulations (secondary legislation), as increasingly the primary legislation provides just the bare bones for any change and regulations are needed to add the flesh/detail.
The demise of lay trustees has been a topic of discussion for over a decade; see, for example, the 2010 DWP report ‘Attitudes to increasing the proportion of member-nominated trustees: a qualitative study (RR670)’.
Moreover, life for trustees boards does not get any easier. Just as they are beginning to find their ‘new normal’ after Covid-19, the only constant is change; not least, implementation of the Pension Schemes Act 2021 and its attendant regulations, including:
- new criminal sanctions;
- a new scheme funding regime; and
- the single code of practice introducing, inter alia, additional governance requirements for Effective Systems of Governance (ESoGs) and Own Risk Assessments (ORAs).
Yet more pension acronyms that trustees will need to get used to!
Arguably, the actual practical governance burden on trustees has not changed that much, even if the backdrop has gained complexity. What has changed is that a lot of best practice has now been codified, with sometimes severe sanctions in the event of a breach.
Evolution – not revolution
On the whole, trustees should have always been working towards what they are now being told they must do. If a trustee board is not managing that (e.g., for budget, time or proportionality reasons), they probably should be looking at other governance models, whether or not recruitment of MNTs is an issue.
In reality, the experience in terms of the constitution and composition of trustee boards is one of evolution. There has undoubtedly been an increase in appointments of professional trustees but, for now, these appointments are mostly in addition to employer and member nominated trustees, rather than in place of them.
A professional trustee alongside employer nominated trustees (ENTs) and MNTs can help with diversity on the trustee board. It also ensures that there continues to be an affiliation between pension scheme members and those responsible for their pensions. The latter is often overlooked in calls for more professionalism of trustee boards, but it should not be forgotten that, even though most defined benefit (DB) schemes are now closed, there are still thousands of schemes, with millions of members, and £billions of assets. The DB ‘tail’ is long and the affiliation points remains relevant.
Also, in the increasingly complex and codified pensions environment, there is a move away from the assumption that consultants can solve the problem. Consultants can help greatly with support, guidance and training but, at the end of the day, the trustees are ultimately responsible; consultants recognise this, and the associated risks, and have become possibly the best advocates for professional trustees.
Consultative committee model
So, whilst it cannot be denied that there has been an increase in sole trustee appointments, rather than an exodus of lay trustees, these often reflect the specific nature of a scheme (e.g., a legacy scheme with no real connection to the current sponsor, or a preference for an executive management model as a scheme matures). In fact, as the switch is often sponsor-led, rather than trustee-led, there can be an appetite for incumbent trustees to stay involved, at least for a period of time. In some cases, this may lead to the formation of a consultative committee, with no legal authority or obligations, but with complete oversight over the activity of the professional sole trustee – a model that could be an attractive solution to avoid knowledge loss if the exodus does arrive.
Most importantly, for the time being, there are still ENTs and MNTs willing to take on, or continue in, the increasingly challenging, but also often very rewarding, role of a pension scheme trustee.