This autumn saw a new responsibility for pension scheme trustees. Schemes with assets in excess of £5 billion became required to comply with climate governance requirements. They will now have to publish a Taskforce on Climate-related Financial Disclosures (TCFD) report and include a link to the report in their annual report and accounts by the end of 2022. Smaller schemes will also be required to comply from next year.
The amount of work involved in preparing such reports is significant and will require trustees to liaise extensively with their investment advisers. Whilst compliance seems unlikely to trouble larger schemes, trustees of smaller schemes – who will not generally enjoy the same access to resources and support – may well struggle to add to a growing number of governance duties.
Trustees’ governance responsibilities stem from two sources: trust law and statute. Trustees are required to treat all beneficiaries (members) equally, to invest scheme assets and to prepare accounts. Over the years, pensions legislation has added a range of specific new responsibilities: the Pensions Act 1995 required trustees to operate a bank account separate from that of the scheme sponsor, for a third of the trustee board to have been member-nominated and to operate an Internal Dispute Resolution Procedure. The range of formally-prescribed governance requirements has continued to grow.
On appointment, a new trustee is now expected to become familiar with the responsibilities associated with running a pension scheme. By the early years of this century, the Government had become aware of the need to provide clear guidance as to its expectations of pension scheme governance. As a consequence, sections 247 – 249 of the Pensions Act 2004 formally set out these responsibilities in what is now called Trustee Knowledge and Understanding (TKU). Trustees are now formally required to be conversant with the basic principles of trust law as well as the rudiments of scheme funding and the investment of scheme assets. To ensure that all trustees were able to achieve this objective, the Pensions Regulator developed the Trustee Toolkit, which is an online resource which has proved to be very successful over the past 15 years.
One topic which has recently given particular cause for concern, is the inclusion within the Pension Schemes Act 2021 of provisions to prosecute trustees and their advisers who ‘recklessly’ damage the funding position of a defined benefit (DB) scheme. Whilst the Government has provided assurances that such powers are only likely to be exercised in extreme circumstances, this development provides a clear indication of the degree of exposure that trustee boards currently face.
There has, however, recently been a new initiative to demonstrate that trustees are fully conversant with their governance duties. Earlier this year, PMI launched an accreditation programme for lay trustees. This followed the outstanding success of the Accreditation programme designed for professional trustees. Lay trustees are now able to demonstrate their commitment to high governance standards through combining the completion of examinations with an ongoing Continuing Professional Development (CPD) programme. Applicants are required to complete the Trustee Toolkit and both parts of the Certificate in Pension Trusteeship. The cost for each paper is £300 for existing PMI members and £450 for non-members. The accreditation fee is £300. The renewal fee is £150 for PMI members and £300 for non-members. Accredited trustees may use the designatory letters LTPMI (Accred).
The governance responsibilities of trustees are now surely greater than they have been at any stage in the past. Many of the responsibilities addressed by trustee boards are particularly onerous, and it is appropriate that there be formal recognition for those trustees whose commitment to the role can be demonstrated through accreditation.
PMI has been proud to support the UK’s trustees for the past 45 years, and we promise that our commitment will continue.
Last update: 14 October 2021
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