DWP proposals for reform of trusteeship offer ‘welcome extra protection for members’

Key recommendations include:

• Tighter controls on the move to sole trusteeship. DWP say: “We will therefore work with TPR and the industry to set clearer criteria on appropriateness of the appointment of PCSTs to schemes going forward, to ensure that PCSTs can continue to be used where they are most useful in smaller schemes and schemes approaching buyout but not where they could weaken challenge in schemes running on.”
• An assessment of whether existing Master Trust boards have the sufficient size and mix of skills to cope with the increasingly demanding role of overseeing a DC ‘mega fund’; the paper quotes the LCP report, Pensions Powerbrokers 2, published earlier this year, which found that fewer than 50 people are responsible for overseeing the seven largest Master Trusts, accounting for more than half of all occupational DC pension scheme assets.
• The introduction of statutory minimum standards for pensions administration

Commenting on the proposed changes with regard to trusteeship, Steve Webb, partner at LCP and co-author of the Pensions Powerbrokers report said:

“The world of both DB and DC pensions is evolving rapidly, with more consolidation into fewer, larger schemes, and much greater demands being made on trustees. In DB, trustees now face an almost bewildering array of ‘endgame’ options, whilst in DC, trustees are dealing with growing complexity of investment decisions as schemes scale up, and a torrent of new regulatory obligations. A review of trusteeship is therefore welcome.

“On DB, sole trusteeship can be appropriate in the right circumstances, such as when a scheme is implementing an agreed endgame strategy and a sole trustee can help to deliver this in an efficient way. But tighter rules on a move to sole trusteeship offers an additional sense check as to whether any change in governance is in the best interests of members.

“On DC, our research has highlighted the growing demands on a very small group of trustees overseeing DC mega funds. There is a strong case for larger boards, providing greater diversity of thought and expertise, as well as for greater infrastructure to support trustees and protect their independence from the pension provider.”

Commenting on the sections of the report dealing with administration, David Fairs, partner at LCP, said:

“These new statutory minimum standards will help drive more consistent service delivery across the industry to ensure that all members experience good levels of service and administration. But the requirements do add further to the burden on administrators who are already busy with data cleanse exercises for the dashboard and risk transfer exercises and new requirements falling on DC arrangements such as VFM.”