The second edition of PMI Pulse included the hot topic of professional trustees and whether every trustee board should be required to have one. This issue has come into sharp focus again in light of the Regulator’s increasingly critical assessment of governance standards, particularly in respect of smaller schemes.

Responses were mixed. A small majority favoured the principle of compulsory professional trustees. However, there were concerns around how this could be achieved, recognising the currently insufficient number of professional trustees to meet such a demand.

Inevitably many respondents made the connection between this potential shortfall and the Regulator’s focus on consolidation to reduce the overall number of schemes, which could provide a solution. Consolidation could also address the other main concern – cost. A number highlighted the cost of a professional on the board as an unwelcome additional burden.

Some queried the premise that a professional trustee would necessarily produce high governance standards, with concerns around diluting the benefits that lay trustees bring. We also asked for views on trustees’ level of understanding of ESG issues. The responses are concerning, particularly the view that the new requirements for SIPs, aimed at increasing trustee understanding, will have limited effect.

Read on for more and see all results here.

Question 1: How satisfied have you been with the direction of pensions policy over the last 6 months?

Overall, respondents seemed satisfied, with 52% very or slightly satisfied. Nevertheless, several respondents felt that progress had been stifled by Brexit.

Question 2: How optimistic are you about the direction of pensions policy over the next 6 months?

Again, the responses mainly appear to indicate satisfaction with the direction of travel, with 35% very or slightly optimistic. From the 59% less satisfied, comments included:
“Lack of delivery of a pensions bill is holding up lots of innovation and decisions, so not necessarily the direction, but lack of progress”
“Unimportant issues will continue to dominate the short to medium term with countless hours wasted on GMP reconciliations when more vital areas such as member awareness and dashboards crawl slowly into the headlines”.

Question 3: Do you think the Pensions Regulator is currently focusing on the right areas?

27% said ‘no’ versus 19% in January. The overall level of support for the direction of travel will no doubt be seen as encouraging.

Question 4: What proportion of current Trust Based DC schemes do you think will transition into Master Trusts in: 5 years’ time, 10 years’ time, 15 years’ time?

The responses present a mixed picture. Whilst a small number of respondents expect a large transition over time, the majority of responses suggest only limited movement, even over a 15 year time period.

Question 5: Should the Pensions Regulator introduce a requirement for all schemes to have a professional trustee?

Respondents were split, with 50% in favour versus 47% against. Judging by the number of comments on both sides, this issue generates considerable interest. Many questioned whether a professional trustee necessarily improves governance:

“They should focus on the competence and skills of the board as a whole – a professional trustee may be a good solution in many cases, provided they’re the right one for the scheme… The importance and value of diligent, skilled, lay trusteeship… should not be downplayed”

“Some of the lay trustees I work with take their role very seriously, including ensuring that they have sufficient training. I would never want to discourage these trustees, who carry so much of the scheme’s history with them”.

Question 6: If the Pensions Regulator was to introduce the requirement that all schemes have an independent/professional trustee on the Board, does the professional trustee sector currently have the capacity to meet the expected demand?

A very clear response here. There seems to be little doubt that, without changes such as reducing the overall number of schemes or significantly increasing the number of professional trustees, any policy to impose professional trustees on all schemes would face significant practical challenges. Comments included:

“Demand will always expand to cope with moves in this direction however there is not sufficient expertise around currently to cover the shortfall…” 


Question 7: When should the Pensions Regulator make it a requirement to have a professional trustee?

Those who wish to see the requirement introduced seem in principle to be in favour of implementation sooner rather than later, with 50% indicating the requirement should be implemented within 5 years. However, as previously observed, these timescales could be severely hampered by supply considerations.

“The longer the timescale the more likely this will not happen. The appetite for more control can quickly dissipate particularly with a change in government”.

Question 8: To what extent do you think the introduction of professional trustee standards will: Improve standards; Lead to consolidation; Increase costs; Lead to a decrease in the number of professional trustees?

Respondents agreed that the introduction of trustee standards will improve standards, increase costs and lead to a reduction in the number of professional trustees. Whether it would be expected also to lead to consolidation in the market is less clear.

Question 9: Are trustee boards sufficiently well informed about ESG issues?

Although not all bad news, the 43% ‘no’ response is of concern. This is an area of growing focus, for good reason. Expectations on trustees to be on top of the issue are already high and growing.

“We are only just starting to look at this seriously”

“Advisers are providing information to trustees; the issue is whether all trustees have or use their advisers appropriately”.

Question 10: Will the new ESG/SIP requirements lead to a significant change in investment policy?

50% of respondents feel that the new requirements will not lead to significant change. Taken with the response to the previous question, this suggests that requiring trustees to increase their focus on such issues through more detailed documentation will not, by itself, be sufficient to force trustees to raise their game on ESG.

“It may over time, but my feeling is that in the short term the SIP will be revised to justify the status quo.”

Kevin LeGrand
Member of PMI Policy and Public Affairs Committee

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