Finding high quality MNTs can be difficult, but is worth the effort
This year the Pensions Regulator hopes to create a model for the ideal 21st century pension trustee.
Lay people with very little pensions experience are required to do an increasingly complicated job
Calling on the industry for their views, the watchdog’s chief executive Lesley Titcomb (pictured) said it was time to redefine the necessary attributes for a guardian of the nation’s retirement funds. Titcomb recognises the challenges facing trustees – lay ones in particular – and said it was “only right that TPR focuses on the capability and competency” of trustees and the structure of trustee boards.
Titcomb argued that “lay people with very little pensions experience are required to do an increasingly complicated job” which casts some uncertainty over the future for non-professionals trustees.
Among those under scrutiny are member nominated trustees (MNTs) whose role it is to represent the interests of the workers who pay into the scheme. MNTs were brought into effect following the theft of millions of pounds from Mirror pension scheme members in the 1990s by Mirror Group owner Robert Maxwell.
we recognise the challenges that some lay trustees face in acquiring the skills and knowledge necessary to be effective trustees
However, pension provision and the legal and political framework that surrounds it have changed beyond recognition since the bad old days of Maxwell, and the demands on MNTs have expanded accordingly.
A TPR spokesman tells Engaged Investor: “MNTs can play a valuable role on scheme boards. However, we recognise the challenges that some lay trustees, including MNTs, face in acquiring the skills and knowledge necessary to be effective trustees in the 21st century, given the increasing demands and complexities faced by all trustees.”
The struggle to recruit MNTs reflects the challenges the role encompasses. TPR research into the UK’s trustee landscape – which surveyed 816 schemes and was published in October 2015 – found more than half (54%) of all MNT selection exercises had involved just one candidate.
The survey also revealed more than a quarter (26%) of schemes disagreed that it was ‘relatively easy’ to find a suitable MNT candidate.
With the majority of schemes closed to new members and future accrual, finding willing recruits is a problem
Peter Askins, director at independent trustee firm ITS, says the challenges in attracting candidates to the MNT role are manifold. First is the ongoing closure of defined benefit (DB) plans, which means pensioner and deferred members are starting to outnumber the active participants.
Askins says: “With the majority of schemes closed to new members and future accrual, finding willing recruits is a problem.”
Second Askins says the “regulatory and compliance burden placed on modern day trustees is far greater than in the past”. Askins says complex investment strategies and sophisticated products – particularly for some DB schemes – further compound the problem.
Trustees are expected to understand all the scheme’s investments and in an era where derivatives, structured products and other more complex instruments are commonplace, this is no easy task.
Trustees carry unlimited personal financial liability in the event that something goes wrong with the scheme, so they need to be equipped to do the job.
Pensions legislation states that individual trustees of an occupational pension scheme must have “appropriate knowledge and understanding of the law relating to pensions and trusts, the principles relating to the funding of occupational pension schemes (DB only) and the investment of the assets of such schemes”.
In addition, TPR says all trustees must understand their duties, responsibilities and powers; when they might be in a position of conflict of interest; and the risk/reward concerns governing the choice of asset classes.
To get up to speed on all this, TPR offers an online trustee toolkit that the watchdog says takes around 16 hours to complete, which is proving popular. The regulator’s survey found 71% of non-professional trustees had used the toolkit as a main training provider.
Unions can help recruit MNTs and often ensure they have the training and skills necessary to do the role
However, keeping up with the latest information no mean feat. David Weeks, committee member of the Association of Member Nominated Trustees (AMNT), says he spent 400 hours in total on training. “A lot is required of MNTs in both attending meetings and carrying out duties, and in attaining the right level of knowledge,” Weeks says.
To make potential MNTS feel more at ease with the training expectations, third-parties such as independent professional trustees, consultants, asset managers and unions can provide additional support, often at no cost to the scheme.
Tim Sharp, policy officer in the TUC’s economic and social affairs department, says: “Unions can help recruit MNTs and often ensure they have the training and skills necessary to do the role.”
Meanwhile Askins says having a professional independent trustee on the board provides “a degree of protection and assurance that might persuade more people to get involved”.
Making it work
For every scheme having trouble requiting MNTs there are three more that find it less challenging. Nearly three-quarters (73%) of the schemes surveyed by TPR said it had been relatively easy securing MNT candidates.
Nearly half (46%) had more than one candidate apply for the MNT role in recruitment exercises over the 12 months to May 2015. Schemes with newly appointed trustees were asked what attracted MNTs to the role with nearly half (49%) citing an interest in pensions as the motivation, with helping the employer and having knowledge about pensions the second and third most common drivers.
For larger schemes it may be easier to find a number of candidates with one or even several of these motivations, while for their smaller counterparts the trustees and employer might have to put in extra effort with recruitment.
The observer can attend all board meetings and they are allowed time to attend training courses and seminars
Sharp says that, where there is insufficient knowledge among potential MNT candidates, trustees can invite members to meetings ahead of recruitment.
“Some interesting work is being done to counter the problem of MNTs having or feeling they have insufficient knowledge, for example, by trustee boards allowing an observer,” he says. “The observer can attend all board meetings and they are allowed time to attend training courses and seminars. This places the observer in a good position to take over when an MNT leaves.”
Of course, taking on the role of observer is only possible if the employer is willing to allow the candidate time off from their day job.
In cases where the trustee board is lucky enough to have a number of candidates to choose from, there are certain attributes which AMNT’s Weeks says are desirable from an MNT.
“An ability to ask questions in board meetings is important. Not asking questions to improve [the MNT’s] own knowledge but to make sure all the trustees understand what is happening and what they are being sold,” he says.
MNTs need to be good listeners, fearless in questioning and challenging advisers
Askins says MNTS are no different to any other trustee in that they are there to protect members’ interest. But he adds: “On the practical front MNTs need to be good listeners, fearless in questioning and challenging advisers, and willing to put in the hours to ensure their level of knowledge and understanding is as good as they can make it.”
The Pension Regulator’s support for MNTs sits rather uneasily with its admission that lay trustees struggle with its governance standards. The role of the MNT is enshrined in law yet much of what is expected of them is laid out in a code of conduct that carries no legal obligation.
It takes a dedicated member to put in the required time – Weeks says they can expect to spend at least six days on active trustee duties – and effort to do the job properly. The personal liability, too, is an important consideration and all this together may be asking a lot from an enthusiastic amateur.
The time must be approaching for a root and branch review of the MNT arrangements
To keep the MNT role alive, trustee boards will need ongoing support in finding, selecting and retaining candidates. Further, obligations which extend to professional or even employer nominated trustees, may have to be scaled back for MNTs. However, given TPR’s prevailing views on what constitutes a 21st century trustee, this latter consideration is unlikely to come to pass.
As Askins concludes: “The time must be approaching for a root and branch review of the MNT arrangements and we hope the Regulator’s 21st century trusteeship agenda is the first step towards that review.”