Regulation of professional trustees ‘must preserve innovation’

TPR announced yesterday (2 April) that it will work with professional trustee firms this year to address risks such as conflicts of interest.

It plans to scrutinise profits and remuneration policies, sole trustee appointments, and the provision of additional services to pension schemes.

In a statement, the Association of Professional Pension Trustees (APPT) said it welcomed the regulator’s announcement and would “engage with TPR on this important topic, in the interests of enhancing governance standards for members and all stakeholders”.

“New challenges will always need to be assessed. The new regulatory model needs to be flexible enough to adapt to new challenges, not just those we have today.”

Rachel Croft, APPT

Rachel Croft, chair of the APPT, told Pensions Expert that TPR had identified a “sensible set of key risks” to focus on, and called for the regulatory framework to maintain flexibility.

“The world doesn’t stand still,” he said. “Professional trustees bring the ability to a trustee board to keep up to date with trends and developments. Artificial intelligence is one such topic and professional trustees can help bring to the table the risks and opportunities involved.

“New challenges will always need to be assessed. The new regulatory model needs to be flexible enough to adapt to new challenges, not just those we have today.”

Andrew Bradshaw, CEO at Independent Governance Group, said it was “right” that professional trustees were held to a high standard given their increasing influence over pension schemes.

“We are particularly keen to work with TPR to ensure that the practical application of the framework works alongside its other stated objective of encouraging innovation in the market, which is key to meeting many of the government’s, and savers’, objectives,” he added.

Balancing skills, diversity and innovation

Helen Forrest Hall, chief strategy officer of the Pensions Management Institute (PMI), agreed that balancing regulatory oversight with innovation was a key challenge for the new framework.

“The PMI is committed to raising standards across the industry and is actively collaborating with trustee firms and sector partners to foster a pipeline of qualified, capable and diverse professionals,” she said.

Adrian Kennett, managing director at Dalriada Trustees, said formal oversight by TPR would help improve standards and establish best practice.

“We believe beneficiaries of pension schemes deserve the highest standards of governance, risk management and expertise and professional trustees should be at the forefront of this,” he said.

“Highly skilled trustees with diverse backgrounds working within teams using robust processes can provide breadth and depth of experience across many pension disciplines. This ensures absolute focus on enhancing member outcomes.”

Scrutiny of sole trustee model welcomed

Maggie Rodger, co-chair of the Association of Member Nominated Trustees, supported the regulator’s move – particularly its intention to scrutinise remuneration and conflicts of interest.

“Decisions and challenges are what trusteeship should be about.”

Maggie Rodger, AMNT

On sole trusteeship, Rodger said the professional corporate sole trustee model was arguably here to stay, and welcomed the regulator’s plan to look closely at how appointments are made and ensure key decision-makers are “fit and proper”.

“Increasingly, we hear that companies are bringing in professional trustees and then spend a lot of time talking about how a sole trustee model would do it better,” she said.

Rodger also highlighted the bundling of additional services together with professional trusteeship – something TPR said it wanted to investigate further. She questioned whether professional trustees would compare the whole market when acquiring services that are also provided by their employer.

“Decisions and challenges are what trusteeship should be about,” she said.

TPR has not launched a formal consultation but has invited comments and feedback through its website.

TPR chief executive Nausicaa Delfas said yesterday that the regulator wanted to explore whether providing additional services introduced risks as well as benefits for pension schemes, particularly if trustees are reluctant to challenge or dismiss their own company from providing a particular service.

“Most importantly of all, we want to know who the scheme decision-maker is – not the firm but the person – that these people have the right level of skills and experience and that they are guided entirely by their duties to act in the members’ best interests,” Delfas said.