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Pensions Regulator 'means business' on trustee standards, expert says


Pension scheme trustees can expect targeted education and tougher enforcement action from the regulator in 2017, as part of its efforts to "drive up standards of governance", an expert has said.

Hayley Goldstone of Pinsent Masons, the law firm behind Out-Law.com, was commenting as the Pensions Regulator published its response (20-page / 105KB PDF) to its discussion paper on '21st century trusteeship'. The regulator received 74 responses to its paper from across the pensions industry, which showed widespread support for its increased focus on driving up standards. However, most respondents called for targeted action from the regulator towards schemes that did not meet the required standards, rather than increasing compliance burdens for all schemes.

The regulator has now confirmed that it will begin a more targeted education programme, aimed at raising the standards of poor trustees, from Spring 2017. It also intends to streamline its website and guidance to make it clear what higher standards are expected of professional trustees and chairs, and introduce tougher enforcement action against trustees who fail to meet these standards.

Lay trustees and chairs will not be required to obtain formal professional qualifications for the time being. The regulator will instead consider whether a 'Fit and Proper' regime, including barriers to entry, would be an appropriate way of driving up standards. It will also encourage trustees that fall short of its required standards to consider consolidation with other small schemes, according to the paper.

"For some trustees, education is key and the regulator recognises that targeted education is needed – the trustee's role has evolved over time and the education side needs to catch up so that trustees are fully armed to make informed decisions," said Goldstone, an expert in pensions disputes.

"To ensure that standards are being met, there are also plans for tougher enforcement and it's likely the regulator will exercise these powers to show that it means business. For professional trustees and chairs of trustee boards, clear guidance around what is expected of them will be welcomed," she said.

Andrew Warwick-Thompson, executive director for regulatory policy, said that the Pensions Regulator was "not prepared to accept two classes of scheme member – those that benefit from good governance and administration, and those that do not".

"In 2017 we will set out clearly the higher standards we expect of a professional trustee and define what we mean by a 'professional trustee'. Further, recognising that the most effective boards have a diversity of skills, we will continue to encourage and support lay trustees through the development of the trustee toolkit and targeted guidance and self-help tools," he said.

The regulator will also consider whether it can do more to encourage the employers of lay trustees to support them in their work, such as through time off for preparation and board meetings and providing effective training, he said.

Tougher governance standards for defined contribution (DC) pension scheme trustees came into force in April 2016. They include the need for trustees to appoint a chair, new reporting requirements and a duty to ensure the value for money to members of scheme default arrangements, including transaction costs and charges. The regulator said that it was already treating trustees' duties as a priority and imposing fines on schemes that did not complete their returns or submit a chair's statement on time.

"If trustees are unable to get even these basic legal duties right, it is likely to be symptomatic of more serious failings, and in some cases fraud," said Warwick-Thompson.

"We have a range of powers already - the appointment of an independent trustee or skilled person, improvement notices, and the suspension or prohibition of a trustee. We also believe that in some circumstances scheme consolidation may be the most appropriate strategy and we are open minded about the longer-term solutions, which is why we are so keep to engage with stakeholders and the wider industry," he said.

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