It is an unfortunate fact that pensions often only become a front-page story when something has gone horribly wrong. Recent examples show once again the pain of corporate failure has been exacerbated by a defined benefit scheme deficit.
If the sponsoring company is to be rescued, resolving the problems of the pension scheme is an overriding priority. This demonstrates with brutal clarity the onerous duty of those with ultimate responsibility for a scheme’s stewardship: its trustees.
The demands placed on trustees can be very extensive. To manage their role effectively, they must have a working knowledge of pension’s law. They must have a deep understanding of their own scheme’s design. They must seek professional advice on a range of aspects of their scheme’s management without becoming over-dependent on their advisers. They must be expert negotiators when discussing the scheme with its sponsor.
"Trustees – and arguably jurors – are perhaps the last remaining roles that can place such extreme levels of responsibility on those without formal training or qualification"
Very often, the value of the liabilities they manage will exceed the market value of the employer that sponsors the arrangement.
And yet, in spite of the demands of the role, the majority of trustees are amateurs.
Trustees – and arguably jurors – are perhaps the last remaining roles that can place such extreme levels of responsibility on those without formal training or qualification.
However, in recent years there has been a marked growth in the number of professional trustees sitting alongside the traditional company/member-nominated trustees.
The reasons for this growth are easy to appreciate. Very often, lay company-nominated trustees occupy senior roles within the scheme sponsor. They may experience conflicts of interest or simply not have the time to manage the scheme effectively.
Member-nominated trustees may similarly be unable to meet the considerable demands of time and knowledge that trusteeship requires. The extreme technical demands of trusteeship can often call for the expertise of a professional.
Professional trustees are commonly those pursuing a second career, having gained experience in a pensions-related discipline: actuaries, lawyers, fund managers and pensions managers commonly make the transition to professional trusteeship. Some work within firms; others as sole traders.
Regardless of background, there is no formal route into professional trusteeship. And this is potentially problematic.
Currently, any individuals may describe themselves as professional trustees. There is no formal regulation and no requirement for recognised qualifications. Those who seek to appoint a professional trustee – often because a pension scheme’s complicated circumstances require the talents of an expert – must exercise care in making an appointment in order to ensure they find a suitable candidate.
The potential dangers are best illustrated by a notorious case from 2011. Graham Pitcher, principal director of trustee firm GP Noble, was found guilty of moving £52m from schemes with insolvent sponsors to offshore investments.
Partly as a consequence of this incident, a number of trustee firms established the Association of Professional Pension Trustees in 2012. This body sought to ensure a guarantee of professional probity by making stringent quality requirements of members. The creation of a professional body has given confidence to a growing and increasingly dependent market.
The issue of qualifications is also being addressed. While the Pensions Regulator offers its Toolkit, the only formal trusteeship qualification in the UK is the Pensions Management Institute’s Award in Pension Trusteeship. This is designed for compliance with the trustee knowledge and understanding requirements of the 2004 Pensions Act, and so is an introduction to the rudiments of trusteeship.
However, the PMI and APPT are currently working together to develop a more advanced qualification called the Diploma in Pension Trusteeship that will focus on skills such as judgement and problem solving that are associated with the more experienced trustee.
Professional trusteeship will, without doubt, continue to expand in the UK as issues affecting pension schemes become more complicated and time-consuming.
It is important that formal standards are adopted to promote public confidence. The recent initiatives will surely play a vital role in achieving this.
This article first appeared on Pensions Expert. Tim Middleton is technical consultant at the Pensions Management Institute
©Financial Times 2016