David Fairs speech | AMNT winter conference | The Pensions Regulator Skip to main content

Your browser is out of date, and unable to use many of the features of this website

Please upgrade your browser.

Ignore

This website requires cookies. Your browser currently has cookies disabled.

David Fairs' speech at the AMNT winter conference

Monday 10 February 2020

[Please note: the transcript of speech may differ slightly from delivery.]

Introduction

Good morning and thank you to David and Shelley for inviting me here today, it’s always a pleasure to speak at AMNT conferences.

Good governance is a subject which is deeply important to me. In fact, it’s one of the reasons why I moved to The Pensions Regulator (TPR) and away from consultancy: because I wanted to be in a position to take some real and positive action towards raising governance standards in the pensions industry.

Your role is vital. You’re responsible for other peoples’ savings. It’s not an easy role and over the last decade it’s become even more complex and demanding.

At TPR we recognise that you - and all trustees - must be supported in that role - you need access to the best tools and maintain the right knowledge to do your job well.

The pensions landscape has evolved so much over the last decade and that’s one of the reasons why we launched our consultation on the Future of Trusteeship and Governance - to help us gauge what more we can do to ensure all trustee boards are equipped to do their job to protect savers properly.

Another key reason for the consultation is to continue the discussion on what should be done about the trustees and boards who can’t or won’t do the job properly. The ones who consistently fail to meet our expectations and fail to engage with us, thereby putting members’ savings at risk.

We believe that all savers should be in pension schemes that have excellent standards of governance and deliver good value - regardless of size and type. And at the moment, that’s not happening, particularly with small schemes.

Only 4% of micro schemes (between two and 11 members) and 1% of small schemes (between 12 and 99 members) meet all our governance standards.

That’s not fair on members. It’s not OK for some savers’ retirements to be in jeopardy because their scheme is badly run.

The future of trusteeship and governance consultation

The consultation ran from July to September last year, and we received 114 written responses - that’s more than any other consultation we have run. We were delighted with that level of response. We also ran two live events during this period, one in Manchester, one in London.

These were also very well attended, and we took on board the comments and feedback we received at these events.

Before I talk about our formal response to the consultation, I’d like to make some important points.

The first is that it was clear from the respondents that everyone agreed with our basic premise that all savers deserve to be in a well-run scheme that offers value for money. That means we have a shared vision. That’s a great starting point.

The second point is that we really did strive to listen to everyone who responded, either formally through the consultation, or at one of the live events. It was important to us that any actions that came out of the consultation are workable in the real world - to reflect not just what we think needs to happen but also what the industry says, based on their day to day experience.

Thirdly, we are mindful of the costs and burdens on schemes. Particularly for those that are already doing a good job. We don’t want to create unnecessary additional costs or hoops for them to jump through.

We’ve now analysed all the responses and today we are publishing our formal response to the consultation. I can’t think of a better place to announce our response than with you today.

I’ll run through the key points with you now and am very happy to take your questions at the end.

Our consultation response

I’ll group these into the same three sections we used in the consultation:

1. Trustee knowledge and understanding (TKU), skills, and ongoing training

The concept of the TKU was introduced 15 years ago. As you know, the pensions landscape looked very different back then.

a) Review and update code of practice

In light of this, we will be conducting a review and update of our code of practice so that our expectations for TKU are appropriate for today’s world.

We’ll be reviewing:

  • content of the code
  • scoping guidance on TKU
  • supporting webpages.

We’ll incorporate the TKU expectations we set out in the 21st century trusteeship campaign as part of this work.

We’ll simplify how we present our TKU expectations and this includes differentiating by trustee role-type and type of scheme (defined benefit (DB), defined contribution (DC) and public service schemes).

Some of you may have heard separately that we are aiming to consolidate all our 15 codes of practice into a single web-based code. This new single code will form the foundation for our subsequent review and revision to TKU related content, which we hope to consult on in the early part of 2021.

The new single code will include new topic areas such as environmental, social, and governance (ESG), including climate change, which people have asked for, and trustees will have an easier 'look-up' function so you can find content more easily.

b) Demonstrating TKU

We will not be expecting trustees to gain qualifications or continuing professional development (CPD), because we know there are different ways of gaining TKU. Instead we will suggest a range of acceptable methods for demonstrating TKU. For example, completing the Trustee toolkit, relevant work experience or through other industry-based training.

c) Ongoing learning

We’ll look at whether to set expectations for ongoing learning, for example we may set an indicative number of hours that count towards learning. For lay trustees, we think 15 hours per year is a reasonable baseline for ongoing learning. This is in line with what many of our respondents suggested.

Professional trustees will be expected to follow the industry-based standards on ongoing learning, which is currently set at 25 hours per year.

d) Trustee toolkit

We know that many of you like and rely on the Trustee toolkit. We also know It can be cumbersome at times. Learning styles have changed since it was first introduced in 2006. 

So we plan to review it over 2020-21 to see where we can make improvements. We’ll aim to make the content more relevant, and will look at how we can help trustees convert their learning into the practical steps they need to take to manage their scheme well.

We also aim to collaborate more with industry to see where we can fill in subject-specific gaps.

e) Time to learn and perform role

Several trustees, in particular lay trustees, told us they were not given enough paid-time to perform the trustee role or to learn. We know that in some cases, lay trustees had to catch up on their trustee duties and learning in their own time outside of work hours, even though by law they should be given this time by the employer.

So we will be running a targeted employer campaign over the course of this year and beyond, to remind employers of their duties in law.

We will include other issues where employers can have a positive impact on the performance of the pension scheme, for example in trustee recruitment.

2. Scheme governance structures for effective decision making

a) Diversity on boards

Diversity on boards is a hugely important issue. Research shows again and again that diversity creates better decision making and ultimately better outcomes for savers.

In the consultation, we asked how we could create more diverse trustee boards. We also asked whether boards should be required to report on steps taken to improve diversity. 

Respondents were fairly evenly split. Some respondents challenged what we are trying to achieve by focusing on diversity and what we meant by diversity.

The evidence showing that diverse boards perform better is so compelling that we will continue to push this point. And I believe that an effective trustee board is not just diverse, but also inclusive. By that I mean that boards must openly welcome all individuals and that board meetings are conducted in a way that enables individuals within the trustee board to contribute to their fullest extent, to be themselves.

We have decided it would be beneficial to create an industry working group to help pension schemes - as well as employers and sponsors - improve the diversity of their boards. Initially, TPR will chair this group, but with a view to others taking on the role later. We envisage that this group will deliver:

  • A clear definition of what is meant by diversity and inclusion.
  • Good and best practice guidance on board composition and how boards can maximise their potential.
  • Practical tools and case studies to promote the recruitment of diverse trustees.
  • Inclusive material that can help to promote the benefits of becoming a trustee.
  • Engagement with employers to recognise the benefits of the trustee role in personal development of employees.

b) Professional trustee on every board

We don’t believe it is currently feasible to require a professional trustee to sit on every board. Most respondents agreed with us on this point. With the exception of some professional trustees.

We don’t propose to do anything in this space at the moment, although we may revisit the idea in the future.

And by holding fire on this proposal, we will be able to evaluate the impact that the new APPT standards and accreditation will have on the quality of professional trustees; as well as assessing the impact that other proposals and activity have had on the standards of governance and trusteeship of pension schemes.

c) Sole trusteeship

I’m not going into too much detail here about sole trusteeship, except to say that some respondents shared our concern about the sole trustee model.

We are not planning to make changes to the way we regulate schemes using the sole trustee model, although we’ll continue to scrutinise those schemes.

We also welcome the new proposals from the Association of Professional Pensions Trustees to develop an industry code.

3. DC Consolidation: Whether industry have any further solutions or ideas in reducing barriers to DC consolidation

Again, I’m not going to dive into too much detail on consolidation.

We’ve made it clear in recent years that we want small and micro DC schemes who are underperforming, to consolidate. The response from our consultation shows there is clear support in the industry for us to do this.

We don’t plan to be prescriptive on this point. In other words, if you are a small scheme and you are doing everything right, and you are offering value for members, you can carry on.

But if not, we will be strongly encouraging consolidation.

Most respondents felt that the most viable solution for members with a guarantee, is assignment to the individual, although clearly there are some issues here. We know that not all insurers are willing to offer this.

So there is more work to be done in this area in terms of thrashing out the details and barriers to consolidation, and we are working with the Department for Work and Pensions (DWP) and insurers to try and create a smother path to consolidation, mindful of the risks to members.

Conclusion

So that is a quick overview of our response and the actions we plan to take.

Before we move to questions, I’d like to emphasise that we know there is a lot of good practice out there. We value the time and dedication of thousands of trustees all over the country who are working to protect savers pensions.

Sometimes as a regulator we naturally focus on wrong-doings, but I do like to acknowledge and highlight the great work too.

The success of this consultation - the high number of responses, the high levels of engagement from trustees and industry - makes me feel hopeful for the future.

I know that when we work together we can bring about a secure and robust market where schemes of all shape and size are well run and where savers can save for their retirement with confidence.

Share this page

  • Facebook
  • Linked In
  • Twitter