TPR tightens grip on professional trustee firms
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The Pensions Regulator will bring in a framework for oversight of professional and sole trustees this year as more pension funds are governed in part or whole by trustee firms. It will scrutinise, among others, the relationship with the employer, and who takes the decisions that fall under a trustee’s responsibility.
Over the summer, TPR will begin “targeted, expert-to-expert" engagement with some trustee firms and expects its oversight to expand to cover the remaining ones by the end of the year. After gathering data, it will then set out its expectations and work with the professional trustee industry to identify mitigations, while potentially also making use of existing powers.
The regulator has already probed 11 of the biggest firms’ ownership structure, skills and experience, knowledge and understanding, diversity, equality and inclusion, conflicts of interest and fees.
“The firms have been open in their engagement with us, as we'd expect given the role they play in governing thousands of schemes. But this engagement has confirmed the need to not only check that professional trustee firms are providing capable trustees, which undoubtedly they can do, but also to make sure that they are operating in a way that is consistent with the needs of savers,” said chief executive Nausicaa Delfas, speaking at the Trades Union Congress Pensions Conference on Wednesday.
Delfas said TPR will interrogate professional trustee firms’ profit and remuneration models to see “if the commercial imperatives of firms could affect trustees’ decision making and whether there's any risk that services could be compromised in a bid to reduce costs”, and if in-house advice is subjected to proper scrutiny.
“Most importantly of all, we want to know who the scheme decision maker is. Not the firm, but the person,” she said.
TPR’s CEO also announced that later this spring, TPR will issue guidance on new models of service provision, including fiduciary management, governance services and endgame solutions for defined benefit schemes.
With a new initiative, TPR will also undertake a further push to get scheme data dashboard-ready. It will reach out to “hundreds of schemes who may be failing our expectations”, Delfas said, stressing that one in four schemes still hold some form of dashboard data in a non-digital form.
Over the summer, TPR will begin “targeted, expert-to-expert" engagement with some trustee firms and expects its oversight to expand to cover the remaining ones by the end of the year. After gathering data, it will then set out its expectations and work with the professional trustee industry to identify mitigations, while potentially also making use of existing powers.
The regulator has already probed 11 of the biggest firms’ ownership structure, skills and experience, knowledge and understanding, diversity, equality and inclusion, conflicts of interest and fees.
“The firms have been open in their engagement with us, as we'd expect given the role they play in governing thousands of schemes. But this engagement has confirmed the need to not only check that professional trustee firms are providing capable trustees, which undoubtedly they can do, but also to make sure that they are operating in a way that is consistent with the needs of savers,” said chief executive Nausicaa Delfas, speaking at the Trades Union Congress Pensions Conference on Wednesday.
Delfas said TPR will interrogate professional trustee firms’ profit and remuneration models to see “if the commercial imperatives of firms could affect trustees’ decision making and whether there's any risk that services could be compromised in a bid to reduce costs”, and if in-house advice is subjected to proper scrutiny.
“Most importantly of all, we want to know who the scheme decision maker is. Not the firm, but the person,” she said.
TPR’s CEO also announced that later this spring, TPR will issue guidance on new models of service provision, including fiduciary management, governance services and endgame solutions for defined benefit schemes.
With a new initiative, TPR will also undertake a further push to get scheme data dashboard-ready. It will reach out to “hundreds of schemes who may be failing our expectations”, Delfas said, stressing that one in four schemes still hold some form of dashboard data in a non-digital form.
Professional trustees say they welcome regulatory focus
More than half of pension schemes use a professional or sole trustee model and just 10 firms govern more than £1tn pounds of retirement income, TPR noted, with professional trustees normally appointed and remunerated by the scheme sponsor. Sole trustees handle £75bn.
The regulator’s findings from its evidence gathering have been published in a new market oversight report and build on its previous work building relationships with large administrators.
In the past, the regulator’s main issues with trusteeship were low standards and lack of professionalism, but the pensions sector has seen considerable professionalisation and commercialisation in recent years. With the sector increasingly dominated by profit-driven firms, staffed by a relatively small number of individuals from similar backgrounds, issues like conflicts of interest, concentration and herding – particularly since the 2022 liability-driven investment crisis – have come on the regulator’s radar.
Professional trustees have welcomed the regulator’s engagement. Rachel Croft, who chairs the Association of Professional Pension Trustees, said the APPT “looks forward to continuing to engage with TPR on this important topic, in the interests of enhancing governance standards for members and all stakeholders”.
The chief executive of Independent Governance Group, Andrew Bradshaw, said given professional trustees’ influence over pensions it was right they are held to a high bar.
In the past, the regulator’s main issues with trusteeship were low standards and lack of professionalism, but the pensions sector has seen considerable professionalisation and commercialisation in recent years. With the sector increasingly dominated by profit-driven firms, staffed by a relatively small number of individuals from similar backgrounds, issues like conflicts of interest, concentration and herding – particularly since the 2022 liability-driven investment crisis – have come on the regulator’s radar.
Professional trustees have welcomed the regulator’s engagement. Rachel Croft, who chairs the Association of Professional Pension Trustees, said the APPT “looks forward to continuing to engage with TPR on this important topic, in the interests of enhancing governance standards for members and all stakeholders”.
The chief executive of Independent Governance Group, Andrew Bradshaw, said given professional trustees’ influence over pensions it was right they are held to a high bar.
“We have invested heavily in developing effective internal controls and our Professional Excellence Committee has a broad remit to ensure that we always operate in line with best practice,” Bradshaw said about his firm.
He cautioned that the framework should not interfere with innovation, saying: “We are particularly keen to work with TPR to ensure that the practical application of the framework works alongside its other stated objective of encouraging innovation in the market, which is key to meeting many of the government's, and savers’, objectives.”
He cautioned that the framework should not interfere with innovation, saying: “We are particularly keen to work with TPR to ensure that the practical application of the framework works alongside its other stated objective of encouraging innovation in the market, which is key to meeting many of the government's, and savers’, objectives.”
The managing director of Dalriada Trustees, Adrian Kennett, welcomed TPR’s focus on his sector: “Highly skilled trustees with diverse backgrounds working within teams using robust processes can provide breadth and depth of experience across many pension disciplines. This ensures absolute focus on enhancing member outcomes."
