21st Century Trusteeship – managing advisers and service providers

The current topic is managing advisers and service providers. Unfortunately, as we have seen recently, service providers can fail, so this month’s focus is particularly topical to help trustees manage any risks.

Trustees must understand the thinking behind a recommendation and be able to make an informed decision

Trustees and scheme managers often appoint service providers to carry out specific tasks, such as administration.

This is usually a good thing. Trustees recognise areas of expertise that a pension scheme would benefit from and appoint experts to delegate tasks to.

If those companies fail or are unable to continue providing a service, pension schemes should have business contingency plans in place that set out what actions will be taken to make sure a scheme can continue to run and, if appropriate, establish where liability lies if processes are interrupted.

However, managing service providers and advisers is about more than just making sure there is a plan in place if the agreement fails.

Trustees and service managers are still responsible for any decisions, even if they are taken on advice from any experts serving the scheme. To ensure schemes are well run there are a number of measures that can be taken.

Appointing the right advisers and service providers is a fundamental part of good governance. They should be able to provide high quality professional advice and services to support the running of the scheme as well as the additional skills, knowledge and expertise the scheme needs to meet its objectives.

It should be made clear what service and advice is expected and how performance will be measured. As trustees are ultimately responsible for a scheme, they should keep a good oversight to make sure everything is running effectively.

Any advice put forward should be scrutinised by trustees and, where appropriate, challenged. Although service providers may be experts, trustees must understand the thinking behind a recommendation and be able to make an informed decision.

Inviting advisers and service providers to board meetings will build up good working relationships, enable trustees to ask questions and to understand the reasoning behind a service provider or adviser’s recommendation and, overall, enable everyone to work together effectively and manage a scheme well.

There is a lot of information on our website to support trustees in this area. The latest 21 focuses on managing advisers and service providers, and the web page also includes previous topics that have been covered in this campaign.

There is more information about this specific topic in a statement we published to provide schemes with more guidance amid recent high profile cases, advice in the DC Code and DC How to Guide, as well as modules on our free Trustee Toolkit about running a scheme, how advisers and service providers can support a scheme and how to go about appointing them.

For more information visit www.tpr.gov.uk/6-advisers-providers.aspx.

Anthony Raymond is acting executive director of regulatory policy, analysis and advice at the Pensions Regulator