UK Pensions - Pensions Regulator sets out blueprint for the future of trusteeship

The Pensions Regulator has published its response to last year’s consultation on the future of trusteeship and governance. The consultation included proposals in relation to trustee knowledge and understanding (TKU), scheme governance structures and defined contribution (DC) consolidation. For the time being at least, many of the more controversial proposals, such as requiring a professional trustee to sit on every pension scheme board, have been shelved. But trustees can expect some changes, particularly in relation to TKU, with much of the detail to follow in a consultation expected in early 2021.

Trustee knowledge and understanding

The response confirms that the Regulator will review and update its TKU Code of Practice and related guidance, to ensure that its expectations for the content and level of TKU that trustees need to attain remains appropriate. Once the revised TKU guidance is in place, and after a reasonable period has been given for schemes to adjust, the Regulator plans to run a regulatory initiative on TKU to check compliance.

The Regulator has dropped plans to require qualifications or CPD to demonstrate how TKU is acquired and maintained. Instead, it plans to articulate a range of acceptable methods for demonstrating TKU. This may include setting an indicative number of hours for ongoing learning – the Regulator has suggested 15 hours per year for lay trustees and 25 hours per year for professional trustees.

The Regulator also intends to review its trustee toolkit over the course of 2020/21 to see whether and where it can make improvements.

Scheme governance structures 

Although it hasn’t ruled it out altogether, the Regulator has for the time being dropped its proposal to introduce a requirement for schemes to report on the steps they are taking to increase diversity on their boards. Instead, it proposes setting up an industry working group to deliver:

  • A clear definition of what is meant by diversity and inclusion.
  • Good and best practice guidance on board composition and how boards can make the most of the pool of potential trustees they have available to them.
  • Practical tools and case studies to promote the recruitment of diverse trustees.
  • Inclusive material that can help to promote the benefits of becoming a trustee.
  • Engagement with employers to recognise the benefits of the trustee role in personal development of employees.

The Regulator has also dropped its proposal to require a professional trustee to sit on every pension scheme board, although it says it may revisit this idea in the future.

Proposals to change the way schemes with sole trustees are regulated have also been shelved for the time being, but the Regulator has said it will continue to keenly scrutinise schemes that use a sole trustee.

DC consolidation

The Regulator says it will continue to monitor DC consolidation activity, and will work with both industry and the DWP to find solutions to overcome barriers to consolidation.