Good morning everyone. Many thanks for the invitation to join you today.
Our relationship with trustees has been long and fruitful. A positive relationship based on mutual respect and a focus on member outcomes. This remains the case and yet I think it’s fair to say we have reached a fork in the road.
Or perhaps more accurately, if less elegantly; we are circling a roundabout, tying to work out which route to take. ‘Options’ would seem to be a pertinent word for trustees in 2019.
There is currently no alternative to the trustee model. It’s not broken, but it could work better.
Continued change will be a challenge for trustees in 2019. But this does not have to be a burden to carry alone.
As our CEO said just before Christmas 'if the trustee model is to survive then it requires attention from the regulator, the sponsoring employers, trustees’ representative bodies and employers'.
There will be plenty of new challenges for trustees this year. I’d like to speak with you about a couple of specifics and some opportunities for you to be involved in shaping the future.
21st Century Trustee
The process we began in 2016 when we consulted on the future of trusteeship produced some incredibly positive outcomes.
The learning was terrific for all parties and the creation of the ‘21st Century Trustee’ project addressed some immediate and fundamental issues. Not least those of good governance and administration.
Throughout 2017, the initiative attracted strong uptake and gave us new insight. One of the strongest pieces of learning led us to those trustees who were not engaged. For whom it appeared adherence to the basics of good governance was an optional extra.
It shone a stronger light on an issue we were already aware of, but not focussed on. The fact there are a worrying cohort, either ignorant of their responsibilities, unwilling to address issues or simply unable to do so.
In general these relate to smaller schemes. There are various reasons for this disengagement; perhaps a feeling that the rules don’t apply, a perception that the scheme is too small to matter, an indifference to the obligations. Whatever the rationale, it leads only one way. Poorer outcomes for members.
The next phase of our trustee work will seek to further address these issues. We want to see a reduction in the number of poorly run schemes. That could include further opportunities to up skill trustees or winding up schemes.
With the deadline for master trust authorisation just days away we know that there will be a safe, managed and regulated place for schemes that wish to take that route. We feel sure that for some trustees it will be a blessed relief.
The consultation will begin around summer, a series of questions and options designed to provoke debate. As a teaser, and something perhaps to discuss later, we might ask if there should be a minimum qualification for lay trustees.
We are interested in your opinions and ideas.
One of the areas we are keen to explore is how to encourage and ensure a new generation of trustees. Legacy planning is something very few think about in relation to their own scheme, let alone the wider trustee world.
There is an opportunity in thinking ahead to prepare for transition and also to address a particular challenge; that of Diversity.
TPR’s particular interest is in the composition of trustee boards. Diverse boards bring better decision-making and governance. They have a closer connection and better represent the members they are there to serve. So there is a particular challenge here. Initiatives such as the ‘Next Generation’ programme which looks at ways to involve younger people in all aspects of the pensions industry are really welcome.
Many trustees come from finance backgrounds. Many of you will appreciate financial skills are not a prerequisite for good stewardship. Equally important are the ability to influence, to be able to ‘speak to power’, to negotiate or the considerable skills required to act as Chair.
These ‘soft skills’ are easily overlooked, but vitally important. A good trustee needs much more than the ability to tot up a spreadsheet.
If we can persuade people with these skills that trusteeship is a good place to deploy them, we might be able to start increasing the diversity of our trustee base.
There are benefits and transferable skills that can be developed by becoming a trustee. Those opportunities could be better explained to prospective candidates. People who might be persuaded to consider trusteeship if they appreciated the development opportunities.
There is a disparity between the membership of schemes and the trustees responsible for them. We’d like a better match and we’ll be exploring how to achieve this. Your thoughts here would be valuable. How do we encourage new and different voices? New and different faces? New and different backgrounds?
We’d like to feel that schemes are being managed by persons as diverse as the membership.
We should then be encouraging all peoples to work in our industry and be making efforts to attract and include them. Barriers erected due to race, sexuality, belief, physical ability are barriers to success. Unconscious bias can lead to a stiflingly lacklustre environment and drain policy development of relevance.
We care for the futures of many millions of people and it’s our duty, whether regulators, trustees, providers or others to be able to understand them and their world and to represent them where necessary. It’s all very well to have empathy, but it’s another entirely to have experience.
We are also mindful of a rise in sole trustee appointments. These are appropriate in some circumstances, but we do have concerns about isolation and vulnerability. Instances where sole trustees might fail to adequately challenge the appointing employer. There is an inbuilt awkwardness that causes us some anxiety. It’s an issue we intend to pay greater attention to.
Increasing numbers of employers are looking to make savings in DB schemes by replacing pension scheme boards with sole trustees. This has the potential benefit of creating a more favourable funding position, but we want to ensure that checks and balances are in place. We do not want a situation where trustees are put in impossible situations. Not a happy position for the trustee or their members.
We are looking positively at the notion of having an accredited professional trustee on each board. We think this will help drive up those standards of governance and administration we are concerned about. This might not be suitable in every case, but as things currently stand it would help mitigate risks and raise standards across the board.
It would be a fairly major change, and one that would require legislation, but it’s something to consider as we seek to improve.
There might be merit in a minimum qualification for lay or member nominated trustees. The pension’s landscape is changing, not least with the general shift from DB to DC. With this in mind continuous development seems a reasonable aspiration. Trustees should be able to keep abreast of emerging trends and policy. Can we offer support in enabling this?
A qualification could help address patchy standards of trusteeship.
Aside from the consultation there are a couple of other challenges to be aware of this year.
As I mentioned earlier master trusts are coming to the fore. The opportunity to consolidate will be – for some – an easier and more attractive option. We are not shying away from the fact that consolidation is something we are going to promote and pursue. We want fewer poorly run schemes.
Our research tells us that one barrier to consolidation is the emotional attachment that trustees have. Particularly in relation to smaller schemes. They feel they’re providing something bespoke for their members.
We don’t dismiss this, it an honourable and laudable stance, but we think trustees need to be encouraged to consider their options. Does operating at such a small scale represent good value?
If this small scale is accompanied by a poor compliance record then we will be doubly concerned.
You’ll see TPR working to remove any barriers to consolidation. We will be challenging trustees (and their sponsors) to ensure their scheme meets the standards set out in the law and in our codes and guidance as a matter of urgency, or else consider the alternatives of winding up or consolidating.
We are also changing the way we work. You’ll have heard about our transformation project. ‘TPR Future’. You’ll know that we are undertaking a huge project to realign and better deploy our resources.
We aspire to be more front footed, to make better use of the data available to us and to be more involved with schemes. Not necessarily those we feel are poorly run, but those we think may be exposed to the biggest risks. We will intervene earlier and offer support – what we call ‘supervision’. Intervention and support where we think it could have the most positive impact.
Trustees will be involved in this new approach. Our officers may want to speak with you. Please don’t be concerned about this. Supervision should feel supportive not interrogative. Our concerns are to make things better, not catch people out.
We are already getting feedback the supervisory approach is far less scary than it sounds. Perhaps we ought have called it something else? Please be assured that if we talk to you about supervision, it does not imply anything more than a genuine concern and interest. Ultimately a concern and interest for your members.
I’ll end with two additional issues for trustees this year. Not necessarily challenges, but one to be mindful of and another to acknowledge.
The first of these is Brexit. An issue that ought not have a major impact on pensions, but one that – due to its potential impact and scope – has raised questions and queries.
We have issued statements on Brexit and guidance for trustees. If you are at all concerned I’d point you toward that guidance. I’d suggest you read or re-read it and check to see if you’ve taken the small steps we have suggested.
That’s all I want to say about Brexit. I hope that’s a relief to you.
The final point, and one just to acknowledge is that we will soon be welcoming a new CEO very soon. Charles Counsell will be joining us in April. Some of you will know Charles from his time with TPR and as a leading advocate in the roll out of AE. His arrival won’t signal any major policy alteration or radical changes of direction. The projects already in hand will continue.
For trustees his tenure will offer new opportunities and a chance to forge new relationships.
Which being us back to that roundabout and the options for routes we could take. The future of trusteeship is not set in stone, there are various routes open to all of us.
I could make a couple of witticisms about directions of travel, but I think ultimately we are on the same journey, if not in the same vehicle.
The final destination is shared. We both want better outcomes for members. We’d all like schemes to improve. We have choices to make about how that can be achieved.
How we get there is to be determined. Together.