Lay trustees still have a role to play in scheme governance

Written by Johnathan Stapleton - Editor, Professional Pensions

The Pensions Regulator’s consultation on scheme governance ups the watchdog’s long-running campaign to improve the standards of trusteeship.
But, this time, it seems to be taking an incredibly tough line, particularly on small schemes. As TPR executive director David Fairs explains on page 20: “Many smaller schemes are simply not good enough… Trustees are either asleep at the wheel or not taking their responsibilities seriously and, as a result, the governance of some schemes is, frankly, breaking the law.” The regulator wants the trustees of smaller schemes to consider if their members would be better off in a bigger scheme that benefits from
economies of scale.

It is no longer content, it says, to let things “trundle on” and is asking the industry if there are barriers to consolidation and if they can be removed. The regulator is also asking if there should be a minimum standard of knowledge, understanding and ongoing learning (presumably,
in addition to the current TKU requirements) and whether or not every scheme should be forced to have a professional trustee on its board. This may all sound very reasonable– after all, the regulator sets the rules, the trustees must surely do what they are told – but we could lose something here with the growing professionalisation of trusteeship and the relentless drive to consolidation. Professionals undoubtedly offer specific technical skills that many lay trustees will be unable to match and also have experience of a number of schemes to draw on.

Likewise, large master trusts and other consolidation vehicles can offer unrivalled economies of scale and resource to help members get better outcomes. But lay trustees often have a much better understanding of the members of the scheme and of the sponsoring employer’s business – a personal relationship that could be diminished should a fund’s board be fully professionalised or a scheme be consolidated into a larger entity. While the regulator wants to boost standards of governance and trusteeship, it should not forget that lay trustees also have an important role to play and one that needs protecting.

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