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Nicola Parish – PMI trustee seminar: innovation, integration and engagement

Thursday 8 June 2016

What does a 21st Century Trustee look like?

Good afternoon

Thank you for inviting me to speak today about a topic that is central to everything we do – improving the quality of scheme governance.

A key element of this corporate priority is our commitment to help those running pensions to meet the challenges of 21st century governance.

We recognise the challenges that some trustees face; challenges in acquiring the skills and knowledge necessary to be effective trustees in the 21st century; challenges in adapting to unprecedented pension reforms.

But we have an important role to play to ensure standards are met.

That’s why we are working with trustees to improve competency, firstly by helping them to improve – and that is where we are today – but ultimately by looking at alternative solutions if certain schemes cannot or will not improve.

So today I will outline what our research to date has told us about the competency of trustees and the levels of risk arising under different segments.

I will give you a preview of a discussion paper that we will shortly be publishing which continues the constructive 21st Century trustee debate and explains next steps for communicating with trustees.

And I will explain how the views and feedback of trustees are helping to shape our approach by highlighting areas where more support is needed, via guidance, tools and training.

Corporate priority

But first let me say a little more about what we expect from all trustees, which our latest corporate plan, published in April, makes clear.

As I’ve said, one of our top priorities is improving the quality of scheme governance, and our corporate plan makes three points on how we will deliver this:

  • We will educate and enable those running pensions to meet the challenges of 21st century governance. We’ll do this by setting out what effective and contemporary trusteeship looks like, and developing tools and guidance to support them.
  • Where necessary, this will include enforcing the requirement on trustees to provide us with timely and accurate information. In addition, we will take action on non-compliance. This will include the new DC requirements for a chair’s statement and implementing charge controls.

On this point, we have recently levied our first fine against the trustees of a pension scheme for failing to complete a chair’s statement.

As you know, we don’t have any option but to fine trustees who are in breach, but early engagement with us will keep fines to a minimum so our message is: Complete your scheme returns as early as possible.

  • And finally, our corporate plan states that our new DC code outlines the standard we expect and that we will help trustees meet those standards through providing supporting guidance. We will seek to reduce regulatory burdens by removing or consolidating our previous guidance. More on that later.

So, our commitment to you as trustees is clear, but so too is our expectation as we strive for better governance and strong member outcomes.

21st Century research

I’ll turn now to the extensive research we have carried out so far in relation to what a 21st Century trustee looks like.

Last summer we opened a debate with industry to measure the skills and competency of trustees.

We commissioned two pieces of research.

First, a large-scale quantitative survey of trustees.

Second, in-depth qualitative follow-up interviews. We looked at areas such as:

  • The ability of trustees and scheme governing bodies to fulfil their roles and responsibilities effectively in an increasingly complex pensions environment.
  • The standards and quality of different segments of the population, including professional, lay and employer nominated trustees.
  • And the ability of trustees and scheme governing bodies to challenge and assess the quality and value for money of their advisory support arrangements.

You may remember we published the findings of this initial research last autumn on the skills and knowledge of pension scheme trustees and their boards, and many of you attended a workshop we held in December to further explore these issues.

So what did we find? On training and competence:

  • Trustee boards generally believed that their knowledge and skills are good, but they recognised some deficiencies.
  • Half of schemes with non-professional trustees did not believe that all of these trustees had a level of trustee knowledge and understanding (TKU) that meets the required standard.
  • And while trustees almost universally believed they have sufficient training opportunities, many do not have a training plan in place. Only half of schemes reported that any of their non-professional trustees had undertaken formal training in the last year.

Discussion paper

So that’s our research findings. What’s next?

Within the next few weeks we’ll be publishing a new discussion paper to share the results of further qualitative research that we have undertaken.

To complement this research, we have also observed a number of trustee board meetings to give us an insight on how they interact and to understand the type of dynamics that exist within trustee boards.

This work has been extremely useful in identifying key areas of focus and in further developing our thinking in this area.

The discussion paper will explain how this insight has already had an impact on our work to date and how it will inform our approach going forward, which I will touch on later.

I’d like to give you a sneak, brief preview of the paper today...

A key learning from our latest research – not just the qualitative research I mentioned earlier, but all the research we do across different types of schemes – is that good governance exists, and many trustees are doing a fantastic job

But we also know that good practice is far from universal. Some schemes are simply not meeting the standards we expect, and there is risk here. Some segments are struggling more than others, for example small schemes versus large ones, DC versus DB.

However, while our findings indicate large schemes, and DB schemes overall, may have better governance, this does not mean that small schemes or DC schemes are universally bad.

We see examples of good governance in small DC schemes and examples of poor governance in large DC schemes. Small schemes though clearly do face challenges. They may have fewer resources than large schemes and may have lower levels of engagement.

Fundamentally, we believe that good governance principles are universal and should apply irrespective of scheme type, whether DB, DC, public service, or hybrid.

And so too is the importance of effective trustee boards.

Our research shows that where the board as a whole has sufficient knowledge and skills, there is a diverse mix of motivated trustees with a balance of interests, skills and personalities. And there is often a strong chair to lead, guide and challenge them.

All these ingredients are key.

Meanwhile, the landscape that trustee boards are operating in is going to keep changing.

There is new legislation on the horizon, the continued roll out of auto enrolment, challenging changes market conditions and increasing complexity in areas like investment.

So the 21st Century trustee is going to need to continue to plan, adapt and respond to these changes.

Impact on regulatory guidance

So how is the insight we have gathered informing our approach to driving governance standards, and our wider regulatory approach?

Well firstly, I’m sure you’ll be pleased to hear that we are not planning to impose new requirements on trustees.

Trustee duties are set out in common law and legislation, and what we aim to do is ensure trustees are clear about what is expected of them, and how to meet their duties.

And neither is it about saying all trustees must be professionals.

Yes, our research has found that professional trustees can bring clear benefits to the board, but it is also very clear that boards need a diverse mix of trustees – with a mix of backgrounds and perspectives.

Instead what we want to do is develop new, better and more relevant ways of supporting trustees in achieving good governance.

What does this mean for the education materials we produce?

If good governance and board effectiveness are common to all types of pension schemes, then we want to reflect this in our wider guidance. We have already started this process.

Therefore, what you can expect from us, over time, is that we will produce more generic guidance materials that cuts across all types of schemes.

For example, our recent guides on trustee board and scheme management are relevant to the effective operation of all trustee boards. We expect to publish these in July.

And we will only produce ‘product specific’ guidance where there is a clear need to do so.

A good example of this type of guidance is our annual DB funding statement, the latest version of which we published last month. This is a ‘product specific’ report showing our analysis of market conditions and how sponsoring employers and trustees of DB schemes can agree appropriate funding plans.

This is a clear change in our approach which will enable us to produce less, but more relevant material. Hopefully this is something trustees and the regulated community will welcome.

We will also deliver our guidance in a more targeted way using our existing communications channels, recognising the needs of different segments and that a ‘one size fits all’ approach to education is not appropriate.

One of the challenges we face is communicating to all trustees.

Not just you, the well-informed member nominated and professional trustees, but also the trustees of very small schemes who may never engage with us beyond completing their scheme return, and who do not meet the standards of trusteeship we expect.

That is a challenge we will tackle through targeted communication campaigns. We will remind certain segments which may not be meeting standards that they have clear duties.

We must do our very best to reach out to these schemes and understand their position.

But ultimately we’ll be thinking about what’s preventing schemes from meeting the standards expected and what should be done with those who don’t.

We welcome industry’s views and will continue to engage with our regulated community on these issues. The discussion paper will encourage people to offer their thoughts on any of the issues raised via a dedicated email address and a form on our website.


So, to conclude then, we are very grateful for the levels of engagement we have seen from trustees, including many of you here today, in the debate about how we improve standards of trusteeship, and meet our goal of improving scheme governance.

But there is some way to go, and some big challenges ahead.

We are confident that with your ongoing support, we will arrive at solutions which drive up standards. And we are not going to ignore the looming issue of how we deal with the long tail of small schemes, and some not so good medium and large schemes, which do not meet the standards of trusteeship we expect.

We are ready to work creatively with trustees, and we are open to solutions such as trustee qualifications and training.

I’d like to stress here that our free, online learning programme for occupational pension scheme trustees is going from strength to strength.

Since the toolkit was launched ten years ago, approximately 180,000 modules have been passed and it has been continuously revised to keep it relevant to trustees.

And as many of you know, earlier this year we unveiled a redesign of the toolkit for use on tablets as well as laptops, PCs and for anyone using screen reader software. It’s now a smoother experience and is expected to drive an increase in tablet usage for trustee training.

We also welcome initiatives led by industry to offer training and qualifications to trustees.

For example, the consultation from our hosts, the PMI, and the APPT on a new Diploma in Pension Trusteeship. This qualification, and others like it, provides another mechanism to help trustees to demonstrate their knowledge and commitment.

I will end by asking you again to continue the debate with us, and with each other, by reading our discussion paper and responding with more useful insights that will shape the vision for the future and ultimately deliver what we are all striving for – stronger member outcomes.

Thank you.