The Government will consult on whether there needs to be greater regulation of trustees, via a new accreditation process and centrally set standards.
The consultation is also asking for industry feedback on new measures to improve the diversity of trust boards, and whether The Pension Regulator’s remit should be extended to cover scheme administrators.
Launching the consultation, which will run until 6 March, the government said that it wants to understand how the role of trustees will change as a result of the Pension Schemes Bill.
The Department for Work and Pensions (DWP) said it wants to build a stronger evidence base on where risks and gaps currently exist, and whether systemic or regulatory changes are needed.
It points out that the UK pensions market is undergoing significant structural change and it is imperative that governance and trusteeship evolves to deliver good outcomes for savers.
However it acknowledges there may need to be different solutions in terms of regulation for different segments of the market. The consultation document notes that the issues facing trustees vary significantly depending on the size and type of scheme, which will soon include CDC and DB superfunds, as well as DB and DC schemes.
In the UK the trust-based pension schemes now oversee around £1.5 trillion of assets, representing the retirement savings of 40m members.
The Government says it is “crucial” these trustees act as “effective stewards with a real interest in the allocation, management and supervision of the companies they invest in”.
In addition, the Government has announced its will produce further guidance to trust-based private pension schemes, aimed at clarifying how they can interpret and apply their fiduciary duties when considering wider factors, including systemic risks (such as climate risk) and members’ standards of living in investment decisions.
In a foreword to the consultation, minister for pensions Torsten Bell said the move towards fewer, larger schemes in the DC sector made it “vital” to take stock of whether current governance arrangements remain fit for purpose.
Despite the widespread changes in the pension sector, Bell says that: “Good governance remains a constant.” He added that trustees must have the skills and knowledge to navigate a more complex system while keeping members’ best interests “consistently front of mind”.
The consultation seeks views from trustees, advisers, administrators, employers and members on how trusteeship should evolve in response to the reforms in the Pension Schemes Bill.
It adds that new initiatives such as pensions dashboards and the value for money (VfM) framework are increasing expectations on both trustees and administrators, requiring schemes to procure and oversee a wider range of services and hold providers to account more effectively.
As a result the government is also seeking feedback on whether appropriate standards for pension administrators are in place, and if enforcement should be strengthened in this area. This could include extending The Pension Regulator’s remit to cover administrators.
Responses are also being sought on issues including support for lay trustees, managing conflicts of interest, ensuring consistent standards across professional trustees, and whether trustees are adequately equipped to operate in an increasingly complex, data-driven pensions environment.
Bell adds: “This consultation takes stock of our trustee and pension administration landscape. It invites views on the issues confronting trustees amidst these transitions and where changes might be valuable.”
Independent Governance Group head of policy Lou Davey says: “Though no firm proposals are being consulted on, there are many important questions being asked, including how best to consider the member voice, how to support administration standards, and the balance of maintaining an inclusive approach to trusteeship while ensuring high quality governance.
“We are pleased that DWP is taking the time to gain a detailed understanding of the issues, current practice, and potential solutions before making firm policy proposals and we look forward to engaging fully with the consultation. High quality trusteeship and governance is vital to ensuring good service and good outcomes for pension scheme members, so taking the time to get the regulatory framework right is an approach we support.”
TPT Retirement Solutions head of policy and external affairs Ruari Grant says: “We’re pleased that government is proactively looking at the future of trusteeship – it is the foundation of how occupational pension schemes provide for their members. For the most part, trustee boards provide exceptional governance and oversight of their schemes, but we’re going through an almost unprecedented period of change in the pensions market, from DC megafunds, to DB superfunds and CDC schemes, all alongside increased attention on investment strategies and innovation.
The Society of Pension Professionals, chair of the administration committee Barry Mack says: “The SPP very much agrees with the government that good governance is vitally important and that pension schemes must be overseen by trustees that have not only the skills and knowledge to navigate the various changes to come, but also members’ best interests consistently front of mind.
“As a result, we welcome this consultation and will certainly be carefully considering our response before submitting our response in the new year.”
PASA chair David Fairs adds: “We welcome the DWP’s focus on the regulation of trustees and administrators and its recognition of administration as a central profession within pensions.
“PASA has long championed the importance of high-quality administration, and our Standards and Accreditation framework offer a proven, effective and continually updated mechanism for raising capability and accountability across the industry.
“We believe the right approach is for more schemes and administrators to seek PASA Accreditation, rather than introducing a new state-run accreditation system which may be slower to adapt to market developments or emerging risks. We remain committed to working closely with DWP and TPR to ensure our standards remain aligned to regulatory expectations.”
