In part one of our series Sara Benwell looked at the five characteristics of a 21st century lay trustee. Now, in part two, she looks at the challenges that face MNTs and ENTs and how they can be overcome.
It’s established that MNTs continue to add value to schemes, particularly when it comes to preserving the members’ voice and ensuring that the end goal of paying member benefits remains sacrosanct.
However, MNTs who want will need to adapt to remain relevant in the 21st century. There are three key barriers they need to overcome:
Andrew Warwick-Thompson, executive director for regulatory policy at the Pensions Regulator warns that recruitment issues may be more complex than they first appear.
He explains: “One of the things that we expected to find was that the research would show people were finding it quite difficult to get MNTs involved.
“But actually we found that when answering that particular question, schemes, generally speaking, said: ‘No! We don’t have a problem getting MNTs, there’s no shortage of MNTS, we’ve plenty.’
A very high percentage of MNTs are actually senior managers in the business”
“What was more alarming, though, when we poked into the answers to that particular question, was that a very high percentage of MNTs are actually senior managers in the business. So one has to question whether they are really MNTs or if they are ENTs and quite whether we’re getting the representation of the members’ voice that we’d hope to have.”
Sarah Smart, chair of the trustee board at The Pensions Trust, says that she has heard anecdotally that schemes closed to future accrual can have real problems with recruitment, but that the Trust rarely has problems getting MNTs involved.
One solution, she suggests, is for smaller DB schemes to look to set up pooled arrangements like the Pensions Trust. She explains: “I would say that DB MNTs will fade away because over the long term we won’t have any DB schemes. So personally I think it will be increasingly challenging to have MNTs on DB schemes.
I think it will be increasingly challenging to have MNTs on DB schemes”
“That’s why I’d advocate a pooled structure… Organisations that have a DB scheme with the Pensions Trust don’t have to provide their own member-nominated trustees but anyone who is the member of a scheme in the Pensions Trust can put themselves forward if they like or they are reassured that other people have put themselves forward as member-nominated trustees.
“I think it makes it easier for schemes to retain that member voice with an ever-dwindling pool of people.”
Tim Sharp, a policy officer at the Trade Union Congress points out that the trade unions can help: “Trade unions play an important role in helping to develop MNTs. And often union activists are the type of engaged members of the workforce who are keen to take on roles such as being pension trustees.”
Engagement is key, says Warwick- Thompson. He argues that the Regulator is particularly keen on lay trustees who are there because they are interested and want to be there, rather than just because it’s their turn to put themselves forward.
2) Avoiding overprofessionalisation
According to Warwick-Thompson, the Regulator is most focused on getting the balance of skills on trustees right, rather than forcing trustees to ever-higher professional standards.
He explains: “Nobody needs to understand how derivatives contracts work, you only need one member of the board to understand how a credit default swap works. We don’t expect every single member of a trustee board to understand the minutiae of something that complex.
You only need one member of the board to understand how a credit default swap works”
“Providing at least one trustee is able to understand and question the advisers and provide some challenges to the advisers on that kind of instrument then that’s sufficient.”
Jeni Goodchild, head of trustee governance at RMPI thinks that overprofessionalisation flies in the face of what MNTs are there to do.
“We have to be careful what we expect trustees to do. They have professional advisers, they have people who are there to tell them what the law is, how the funding works. The trustees’ job is to question, to challenge, to push and to remind everybody that it is all about the members, but when they take that advice and come up with decisions they should be entitled to rely on their advisers.”
3) Getting employer buy-in
One problem that many lay trustees have when it comes to getting the right levels of experience and knowledge is employers who begrudge them time out of the office.
This is something Smart has seen at the Pensions Trust, not just from MNTs but also with their employernominated counterparts.
They need to allow those people to do their job properly”
And RMPI’s Goodchild argues that employers need to invest in their MNTs if a trust-based approach is going to work.
She says: “If an employer is going to have a trust-based scheme and it’s going to nominate and appoint members to its trustee board or committee, then they need to recognise that there’s a time commitment and they need to allow those people to do their job properly.”
The route ahead
Despite the challenges, the Pensions Regulator is keen to stress the continued importance of both member- and employer-nominated trustees.
Warwick-Thompson says: “There’s a role for professional trustees, employee-nominated trustees and member-nominated trustees in all occupational schemes.
We will be focusing on the overall composition of the boards of all DC and DB schemes”
“It’s certainly clear that the levels of knowledge and understanding vary between categories of trustee – trustee engagement varies, so I think that what we will be focusing on is the overall composition of the boards of all DC and DB schemes.”
Better training methods will be crucial in smoothing the way forward and overcoming many of the challenges trustees are facing. It will also give lay trustees the right knowledge and understanding to allow the role to develop into a 21st-century solution.
Sharp warns, however, that while training is more important than ever for the future of lay trustees it must be used correctly.
We should certainly not be complacent about where we are”
“We should certainly not be complacent about where we are and it’s important to keep looking at things like the skills and knowledge of trustees and training as tool for supporting them in their work, but certainly not as a stick to beat the trustee with, or as some sort of way of professionalisation by the back door.”