Mansion House reforms: Trustee capabilities come under scrutiny as consultation period opens

The Department for Work and Pensions and HM Treasury have issued a call for evidence over concerns that trustees, especially at the smaller end of the market, appear to be unaware of many of their duties and legal obligations.

The call for evidence, which is now open and has a closing date of 5 September, has been issued over concerns that the number of trustees engaging with legal guidance is worryingly low. 

Some pension scheme trustees are unaware of many required duties and need better skills to implement new government objectives of investing in unlisted companies to boost growth and returns for savers, Britain's finance ministry said on Tuesday.

The DWP and HMT said they were issuing this call for evidence to "deepen the evidence base around trustee capability and other barriers to trustees doing their job in a way which is effective and results in the best outcomes for savers".

Trustee knowledge

It will focus on three areas: trustee skills and capability, the role of advice, and other barriers to trustee effectiveness.

"We are particularly interested in whether trustees have the right knowledge and skills to consider investment in the full breadth of investment opportunities. We are interested in trustee capability for defined contribution (DC), defined benefit (DB), and collective defined contribution (CDC) schemes, as well as hybrid schemes, although some areas in this call for evidence may focus more on one type of scheme than the other."

"We want to hear from the pensions industry, including trustees and those who advise them, as well as other stakeholders who can offer an informed perspective on trustee capability and barriers to trustee effectiveness. The responses to this call for evidence and other stakeholder engagement will inform DWP and HMT’s understanding of these issues and, if necessary, will help inform the development of future policies in these areas. 

Earlier this week the Chancellor of the Exchequer Jeremy Hunt unveiled plans to increase pension fund investment in unlisted companies in order to unlock an additional £75bn a year", and help improve returns for pension savers

Laura Trott, pensions minister,m and Andrew Griffith, economic secretary to the Treasury, said they would be looking for evidence on whether the current framework and guidance on fiduciary duty was sufficient to help trustees make decisions in the best long-term interest of savers.

They also want to examine whether trustees have sufficient time and support to fulfil their duties.

Trustees and pension reforms

Trustee capabilities will be needed to help implement key planned policy changes including: the transformative value for money framework, the extension of collective defined contribution (CDC) pension scheme provision, a regulatory regime for consolidators of defined benefit schemes, a decumulation framework that provides support for members, and a solution to address the long standing and costly problem of deferred small pots.

In a joint statement they said said: "The trustees of pension schemes will need to operate in an evolving and more complex regulatory environment for these policies to work and deliver for savers. We recognise that the role of a trustee is not an easy one, and it comes with significant responsibility. We must ensure trustees are properly equipped and supported to meet the demands of the role."

"We need trustees to have the right skills to consider investment in a full range of assets that could provide higher returns for savers and give them a comfortable retirement.

"We need to ensure trustees have the right support, skills, knowledge, and experience to undertake their challenging roles to secure the best outcomes for pension savers.

"Trustees do not work in a vacuum, and to deliver significant change, we cannot only target one part of the investment supply chain. That is why this call for evidence is being undertaken jointly by both our departments, with DWP looking at the role of trustees, and HMT looking at advisors in the investment decision-making process."

Future of trusteeship

David Fogarty, a director and professional Trustee at Dalriada Trustees, said the call for evidence was an opportunity to reshape what trusteeship looks like. He said: "We generally think about trusteeship as a trustee board structure including a broad range of skills and knowledge including member nominated trustee that meets quarterly or even less frequently.

 “However, comparable financial entities - banks, building societies and life insurance companies - do not work in this way to manage complex financial structures. Rather they use a team of experts alongside robust systems who manage risks and opportunities on a daily/hourly basis.  Revisiting how trusteeship should be structured could allow the management of schemes to become akin to that approach."

 “We see effective trusteeship and consolidation as overlapping and look forward to the opportunity to respond to the proposed changes through the consultation windows in the expectation that outcomes for members and for sponsors can be enhanced.”

Laura Andrikopoulos, partner and governance consulting lead at Hymans Robertson, said the review also have wider benefits including a proposal for The Pensions Regulator to keep a full register of all trustees and strengthened trustee accreditation regimes.

She added: "In the barriers to effectiveness session, trustees’ fiduciary duty is questioned, with an implication that current interpretations may be holding trustees back from considering a wide range of investments.

"The timing of the consultation reflects wider calls from the government to re-think pension scheme investments. Pension schemes are enormously influential in financial markets and provide vital income for their members in retirement so we welcome debate on how their assets are best invested to ensure optimal member outcomes.”