Trustee Governance Frameworks, Changing to Meet Increasing TPR Oversight

With more than half of UK schemes using a professional or sole trustee model according to industry research, TPR are enhancing their regulatory framework to provide greater oversight of professional trustees.

TPR recently published a market oversight report exploring some of the areas where risk could arise and identified five key areas. They are now progressing these as part of an industry wide approach to develop an ongoing supervisory relationship covering:

• relationships with employers
• profit and remuneration model
• sole trusteeship
• in-house advisers
• scheme decision maker

The underlying governance framework employed by the professional trustee firms is also coming under the microscope. The rise in the number of Sole Trustee appointments means that TPR wishes to understand the reasons behind the appointment of sole trustees to schemes and what internal controls sole trustees operate once appointed. This is linked with their focus on who makes daily decisions on behalf of schemes and the level of knowledge and understanding they have of pension scheme governance.

TPR are looking to probe firms’ internal controls and be assured that their operating models do not encourage inappropriate delegation. They are keen to ensure there are appropriate levels of accountability, transparency, and support. Several professional trustee firms are part of groups that provide additional services, including secretariat, administration, and professional advice. This provides opportunities for efficiencies and value for money services but also introduces a risk of conflict of interests.

There has also been a significant increase in the number of professional trustees over the last few years which will also help with the need for succession planning as older, experienced trustees look to retire but also draws focus on the standards and entry criteria for new hires.

For many years there has been a focus on scheme governance, it is now clear that this includes understanding the governance of the professional trustee firm. Research has shown that there is limited external review of professional trustee appointments with most being undertaken internally. As a matter of good practice, TPR have suggested that there should always be a formal tendering process for a new appointment, and the employer should consider how they would review the service and whether there should be a preset retendering period. They also note that consideration should be given to the number of appointments held by an individual trustee.

At Pi Partnership, we are fully supportive of any developments that increase the levels of professionalism, transparency, and accountability within professional trustee firms. We encourage all employers and trustee boards to learn as much as they can to understand how their professional trustee works and ensure they ask the right questions ahead of any new appointments.