The new Pensions Act was published 12th February 2004 and received Royal Assent on 18th November 2004. It extends to 325 sections and 13 schedules with more regulation and guidance to follow. It will begin to take effect from April 2005 and whilst the legal position of trustees remains unchanged the Act will define the role of a trustee more closely. The establishment of a new code of practice will provide a benchmark against which trustees can be judged. Trustees therefore need to understand that they each have a personal, non transferable liability and that ultimately the buck stops with them.

Sections 247- 248 of the Act requires trustees and directors of trustee companies to have “knowledge and understanding” of:

• The law relating to pensions and trusts.
• The principles relating to the funding and investments of occupational pension schemes.
• Other matters which may be prescribed.

In addition they must be “conversant” with:

• The trust deed and rules of their scheme.
• The current statement of investment principles.
• The statement of funding principles.
• Any other document recording the policy being adopted by the trustees relating to the administration of the scheme generally.

Whilst no penalties attach to these requirements the new pensions regulator will have the power to issue “improvement notices” should it be felt that scheme trustees are failing to meet the standards necessary.

At the moment there is no suggestion that a mandatory qualification will become a requirement but there is little doubt that having such a qualification confirms that the trustee understands their role as well as providing a useful defence if their ability or knowledge is challenged. Whilst a formal qualification is not a requirement at this stage there is a proposal that trustees will need to keep a formal record of how they have kept their knowledge up to date. This will be similar to the “continuing professional development” records required by many of the professions.

These factors will undoubtedly lead to an increased requirement for trustee training, a fact recognised within the Act. The type of training required is likely to fall in to three distinct categories:-

1. Generic trustee training

This would be aimed at covering the general investment and legal issues outlined in the first three objectives shown above and we would expect it to be utilised primarily by new trustees and as a refresher for trustees who have not attended a formal training session for some time.

It is important that trustees are provided with this training from a source independent of their usual advisers. The Act is seeking to encourage trustees to be sufficiently qualified and confident to question and, if necessary, challenge the advice they are given by their professional advisers. Our experience suggests that the courses offered by consulting firms can tend, at best, to promote their “house” views and at worst, be viewed primarily as a business development exercise.

We believe the training requirement can be best met via independent professional courses, such as those run by bodies such as the National Association of Pension Funds (NAPF). These courses are available across a number of locations and offered at a variety of times and durations and offer the truly independent training we believe is needed. There is also the PMI “Trustee Certificate of Essential Pension Knowledge” qualification, study for which should not only cover the basic requirements of generic knowledge but also result in a formal qualification at the end of the study period. We would expect a significant increase in take up for this kind of course.

2. Bespoke Trustee Training

Trustees will also require very specific training which will provide guidance related to the documentation and processes adopted by their individual scheme. We believe that this training should be run in close conjunction with pension scheme advisers and must cover the core areas of responsibility as they directly impact on their own scheme. Ideally this training process will also result in specific outputs formulating the scheme trustees approach to areas such as scheme governance, adviser selection and investment monitoring.

3. Ongoing Training and Development

In the past trustees generally had the opportunity to attend a single generic trustee training session, usually shortly after their appointment. The “trustee training” box could then be ticked and in many cases, forgotten about. It is clear that this will no longer be adequate and trustees will need to demonstrate how they have maintained their ongoing competence to act. Ongoing training and development can be formal i.e attending seminars on topical pensions issues, or informal such as reading relevant publications, or simply gaining experience from doing the job, attending meetings and working with advisers on various issues. The important addition here is the requirement that whatever its type it is formally documented.

The training approach and requirements will be different for each scheme, not to mention potentially for each trustee, and it would seem sensible for each Board of Trustees to construct a training plan outlining their objectives and timescales. Each board should also agree a structured approach to evidencing both formal and informal training and development.

There is little doubt that standards in this area needed to be raised and the implementation of a code of practice will provide a sound foundation but as ever its effectiveness will be shown by how consistently it is implemented by trustees and scheme sponsors, particularly in terms of the time and financial commitment required to keep trustees abreast of what is expected of them.

Better qualified and informed trustees can only be of benefit to scheme governance and trustees and scheme sponsors need to make plans how they intend to meet the standards required as while there may be no intention to make all trustees “professionals,” lay trustees will be expected to act in a professional manner.

ENDS

970 words

Published in Professional Pensions January 2006

Posted in: Blog
Tags: Pensions, Trusteeship