With Autumn leaves falling, it isn’t just our central
heating at home that is being turned up. The Pension Regulator is also turning
up the heat on Trustees
and Employers with legacy defined benefit schemes.
Financing the accrued pension obligations of the UK final
salary pension scheme promises is a high-profile subject, regularly reaching
the front pages of the papers. As can be seen from the recent Thomas Cook
announcement, it is also an important issue to thousands of UK
What changes have been made?
The Regulator has raised the bar on the question of funding
these promises, particularly for companies who want to continue paying
dividends. They have also made it clear that schemes must have a well-defined
long-term plan for securing members’ benefits.
It isn’t however just about large employers or large pension
schemes. The Regulator is also turning up the heat on smaller schemes where
they have raised concerns about the general standard of governance. The focus on trustee behaviour has never been
greater and the need to be able to demonstrate good governance has increased in
several areas, for example:
- Proper independence in
the assessment of the employer covenant strength when setting the three-yearly
actuarial valuation assumptions and negotiating the new funding plan.
- Compliance with the
increasing range of legal requirements, from completing the accounts on time to
making sure the trustees’ pensions knowledge is provably up-to-date.
- Formally assessing the
risks facing the scheme, having written policies to deal with conflicts of
interest and a detailed business plan.
Where trustees don’t meet the Regulator’s expected
standards, we are starting to see a move from education towards enforcement.
It has become increasingly difficult for many schemes to
find new trustees or where existing trustees are also company directors the
demands on their time to manage challenging business issues impacts on their
ability to focus on their trustee duties without increasing support. We are
therefore seeing more employers looking at the option of appointing a
professional and independent trustee, either jointly with the existing trustees
or, increasingly, as a sole trustee.
A professional trustee company will have well-established
procedures for keeping on top of all of the deadlines and keeping governance in
good order. You should expect them to keep you off the Regulator’s radar, while
at the same time having clear protocols for consulting the employer on all of
the really important issues of funding, management costs and good member
communication whilst managing the conflicts of interest that can arise.
In response to these market developments the Regulator is
also looking at the role and governance of the Sole Trusteeship model. We are
fully supportive of these increasing drives to improve standards as well as
embracing the transparency required for Sole Trustees, which is central to our
business, with over two thirds of our trustee appointments now based on this
For more information about trustees, pension schemes and other independent
trustee services – get in touch with our team