The Pensions Regulator (TPR) has ditched plans to introduce tougher mandatory governance rules for pension trustees but warned it will “encourage consolidation” where trustees fail to improve governance to the required standards.
In its consultation on the future of trusteeship and governance, published last year, TPR proposed plans to make it mandatory for pension scheme boards to engage a professional trustee. It also asked if governance standards for sole trustees should be strengthened.
Following the consultation, the regulator has confirmed it will not immediately push for these measures, but will instead support the standards set by the Association of Professional Pension Trustees’ (APPT) and the upcoming industry accreditation framework for professional trustees.
The regulator also backs the APPT’s intention to develop an industry code for sole trusteeship.
While it’s dropped the stricter measures, TPR said it is crucial for trustees to constantly review and develop their knowledge and skills and improve diversity and inclusion on trustee boards.
The regulator will update its Trustee Knowledge and Understanding code of practice and review the Trustee toolkit to “make its expectations clearer and to drive up standards of trusteeship”.
Once the new standards are in place, the TPR will run a regulatory initiative to test levels of trustee knowledge and understanding, and to consider appropriate action where they fall below expectations.
On diversity, TPR will establish and lead an industry working group to improve trustee standards in this area.
David Fairs, executive director of policy at TPR, said it is clear there is strong support from the industry for a collaborative approach to improving governance standards to protect savers and member outcomes.
“The route to achieving this goal is driving up standards across all schemes, but particularly in small and micro schemes that our research shows tend to have poor governance,” Fairs said.
Fairs added it will monitor standards to ensure scheme governance is met, and enforce the right action where schemes do not improve.
“Only in this way, and by working with industry bodies, can we ensure savers are adequately protected,” Fairs commented.
Pensions consultancy Hymans Robertson welcomed TPR’s plans, noting that the pensions industry has been slow to recognise empirical evidence that diverse boards tend to be higher performing.
“The industry group on board diversity is welcome and very much needed,” Laura Andrikopoulos, head of governance at Hymans Robertson, said.
“It is unsurprising that professional trustees will not be mandatory on boards at this time, given the supply issues in the market,” Andrikopoulos added.
However, Hymans said it would encourage boards to regularly test if a professional trustee is required, as part of their annual effectiveness assessment.
