The Department for Work and Pensions (DWP) and the UK Treasury have launched a joint call for evidence to support the development of policy options for improving the skills and capability of pension trustees and removing barriers to trustees’ ability to make effective investment decisions.
DWP and the Treasury issued the consultation to deepen the evidence base around trustee capability and other barriers to trustees doing their job in a way which is effective and results in the best outcomes for savers.
The consultation is focused on three areas:
- Trustee skills and capability – this area seeks views on the current state of trustee capability as well as gathering evidence to inform potential policy options around trustee registration, accreditation requirements and professionalism.
- The role of advice – this area focuses on the role of investment consultants and others in advising trustees.
- Barriers to trustee effectiveness, including duties – this area seeks evidence on whether the current framework and guidance on fiduciary duty is sufficient to help trustees make decisions in the best long-term interest of savers. It also covers whether trustees have sufficient time and support to fulfil their duties.
The DWP and the Treasury said they are “particularly interested” in whether trustees have the right knowledge and skills to consider investment in the full breadth of investment opportunities.
The duo added that they are interested in trustee capability for defined contribution, defined benefit, and collective defined contribution schemes, as well as hybrid schemes.
The consultation is looking for responses from pension scheme trustees, pension scheme providers, other industry bodies and professionals, members of the advisory community and any other interested stakeholders.
The responses are expected to inform the DWP and the Treasury’s understanding of these issues and, if necessary, will help inform the development of future policies in these areas.
The consultation will run until 5 September 2023.
Andrew Griffith, economic secretary to the Treasury, and Laura Trott, minister for pensions, said in a joint statement: “Together, we believe in a future pension system which upholds three key pillars: fairness, adequacy, and predictability. Our intentions are ambitious and are all designed to improve saver outcomes.
“Key planned policy changes include the transformative Value for Money framework, the extension of Collective Defined Contribution pension scheme provision, bringing forward a regulatory regime for consolidators of defined benefit schemes, setting out a decumulation framework that provides support for members, and a solution to address the longstanding and costly problem of deferred small pots.”
They added that the trustees of pension schemes will “need to operate in an evolving and more complex regulatory environment for these policies to work and deliver for savers”.
“We need trustees to have the right skills to consider investment in a full range of assets that could provide higher returns for savers and give them a comfortable retirement,” they said, adding that it is important that trustees have the right support, skills, knowledge, and experience to undertake their challenging roles to secure the best outcomes for pension savers.
Laura Andrikopoulos, partner and governance consulting lead at Hymans Robertson, welcomed the interest from the DWP and the Treasury in trustee skills and effectiveness, and added that while the two institutions mainly focus on the ability of trustees to make investment decisions in their consultation, the review may have wider benefits.
She said: “The consultation covers the current state of trustee skills, the role of advice and barriers to trustee effectiveness. Proposed ideas in the consultation include a requirement for The Pensions Regulator to keep a full register of all trustees and strengthened trustee accreditation regimes.
“In the barriers to effectiveness session, trustees’ fiduciary duty is questioned, with an implication that current interpretations may be holding trustees back from considering a wide range of investments. The timing of the consultation reflects wider calls from the government to re-think pension scheme investments.”
Nathalie Sims, partner at Lane Clark & Peacock, meanwhile said that trustee landscape is “already evolving at a rapid pace”.
She said: “Our latest professional trustee survey demonstrates that nearly half of all UK pension schemes have at least one professional trustee appointed, and nearly 20% of those are in a sole corporate trustee arrangement where entire trustee boards are being replaced with a team within a professional trustee firm to supplement the need for additional skills around investment and trustee effectiveness. As a result, large schemes in particular generally have a high level of professionalism and knowledge to draw upon when making investment decisions.”
She noted, however, that a risk that the increase in demand for those services could result in a squeeze in supply of professional trustee services which could lead to sub-optimal outcomes, especially for schemes without a professional trustee, looking for additional skills to supplement their board.
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