The Pensions Regulator has published its response to its "Future of trusteeship and governance" consultation.  Despite a wide ranging consultation, no major changes have been proposed.  

The consultation focussed on three key areas:

• trustee knowledge and understanding (TKU);

• scheme governance; and

• driving DC scheme consolidation.

TKU

No change to existing TKU requirements

The Regulator intends to review and update its code of practice, incorporating its expectations communicated in its "21st century trusteeship" campaign.  (The original consultation contained ten bullet points summarising these, which include good governance, ensuring trustees have the requisite skills and experience, and monitoring the value the scheme is achieving.)  It intends to differentiate its expectations by type of scheme (DB, DC and public sector) and by trustee role-type (eg chair or professional trustee).  However, the Regulator is currently working on consolidating its 15 codes of practice into a single code and does not intend to consult on changes to TKU-related content until early in 2021.

Regulatory initiative – engagement with schemes about a particular risk

Once the revised TKU content and guidance is in place and schemes have had a reasonable period to adjust, the Regulator plans to run a "regulatory initiative".  This involves the Regulator contacting a large number of schemes about a particular risk and engaging with those which it regards as not having adequately addressed the risk.

No mandatory qualifications, but CPD indicative hours and activities expected

The Regulator has decided not to seek to change current TKU legislation to require trustees to have qualifications or demonstrate how CPD is maintained.  Instead it will look to articulate a range of acceptable methods for demonstrating TKU, for example completion of the Regulator's Trustee toolkit, relevant work experience, industry-based training or, in the case of professional trustees, industry accreditation.

The response suggests that the Regulator will set indicative hours and types of activities that count towards learning.  The Regulator considers 15 hours per year of ongoing learning to be a reasonable baseline for lay trustees and 25 hours to be reasonable for professional trustees.

Trustee toolkit to be maintained

In response to feedback, the Regulator intends to maintain its Trustee toolkit, reviewing it during 2020-21.

Scheme governance

No diversity requirement

The Regulator has decided not to pursue the introduction of a requirement for schemes to report on the steps they are taking to increase diversity on their trustee boards, but intends to create an industry working group to provide guidance on good practice in this area.

No professional trustee requirement

The Pensions Regulator reports that a large majority of consultation responses were against it being mandatory for a scheme to have a professional trustee, so it does not intend to take further action on this at present.

No change to rules on sole trusteeship

The Regulator's consultation had raised concerns that having a sole trustee could potentially result in lower governance standards.  The Regulator uses the term "sole trustee" in this context to describe the situation where an individual or professional trustee company is appointed to replace a traditional board of trustees, not the scenario where a "traditional" trustee board has been incorporated.  The Regulator says it does not currently propose to make changes to the way it regulates schemes that use a sole trusteeship model.  However, it does have concerns about how effective some of the models are at dealing with conflicts of interest and ensuring saver engagement.  It therefore intends to commission research of the "scale and reach" of sole trusteeship.  The Regulator says that consultation feedback was generally that sole traders were not suitable for a sole trusteeship role.  Professional trustee firms with employees were generally regarded as offering more benefits than other sole trusteeship models, with concerns being expressed that franchise models, under which smaller operators work under the name of an umbrella organisation, were not as strong.

Scheme consolidation

Bulk transfers with guarantees – no change

The consultation had noted that changes to the law in 2018 designed to make bulk transfers between DC schemes more straightforward did not apply to schemes with guarantees (eg guaranteed annuity rates).  It had sought views on how this could be addressed.  The consultation response appears to indicate something of a mismatch between consultation responses and the Regulator's preferred approach.  For example, a popular option among consultation respondents was amending legislation to require NEST to accept assignment of such schemes, but the Regulator's response is that this is not something that could be achieved in the short term.

Statutory guidance on value for members

The Regulator says is does not intend to provide guidance for schemes with guarantees in the immediate future.  However, it says that the DWP intends to produce statutory guidance to help trustees establish whether their scheme is offering value for members (in connection with its consultation "Investment innovation and future consolidation") and that this guidance is likely to make specific reference to schemes with guarantees  and how the trustees might value the benefits offered in such schemes.

Our thoughts

Having sought views on some quite radical proposals in its consultation, the Regulator has decided against making radical changes for the time being.  Although no immediate changes are planned to formal TKU requirements, trustees should note that this is an area on which the Regulator intends to focus in future.  They should therefore keep records of any TKU activities undertaken and consider whether these are sufficient to meet the Regulator's suggested baseline of 15 hours per year for lay trustees and 25 hours per year for professional trustees.