The government will ramp up governance requirements at master trusts and for pensions administrators but has largely opted for the status quo on trusteeship aside from a new collective skills requirement. It has refrained from mandating accreditation, tenure limits or member trustees on master trusts, and trustee firms can continue to offer other services that might create conflicts. 

The Department for Work and Pensions consulted on trusteeship and governance last year, saying consolidation and commercialisation of pensions demand greater oversight of concentration risks and potential conflicts of interest in the sector. On Tuesday it published its response. 

Some of the proposals might require legislation. Pensions minister Torsten Bell said where that is the case, "we will take changes forward at the next opportunity".  

While the measures put forward only affect trust-based schemes, the government will also consider if changes need to be made "so that savers within contract-based pension arrangements have equivalent outcomes in terms of strong governance and protections", he added.  

For the trust-based space, the changes includes plans to strengthen the master trust authorisation regime to include governance and conflict management arrangements across the provider entity. The government will step up and extend fit and proper requirements, introducing requirements for the Pensions Regulator to approve key function holders within master trust providers, while the government will "further consider appointment and removal arrangements for trustees of Master Trusts".  TPR will also be given greater intervention powers so that it can demand action from master trusts before an issue has occurred.  

The DWP will also look at whether the minimum number of trustees on very large schemes "allows for sufficient skills, expertise and diversity of thought".  

The exemption of master trusts from the legal requirement to have member-nominated trustees on the board has come under scrutiny lately as the number of members at these large schemes has increased, while the trustees taking decisions on their behalf are sourced from a small pool of recognised industry names. The government highlighted a report from 2013 by the Office of Fair Trading which argued that governance requirements at defined benefit schemes were of a better standard than for defined contribution.  

The DWP said it would respond to concerns about lack of member voice. Despite this, it said that "we also recognise that the traditional member-nominated trustee model, developed primarily for individual employer DB schemes, cannot simply be replicated in the increasingly large and diverse DC schemes of the future". 

That may not be enough for those who think members need to sit on boards to have any real say. John Flynn, co-chair of the Association of Member Nominated Trustees, said that as schemes grow larger and more distant from the people they serve, the member voice matters more. 

"The member voice must be heard on every scheme and not just member panels," Flynn said. “We look forward to working with DWP and the Pensions Regulator to make sure the new regime for megafunds puts members and their voice at its heart.” 

In a similar vein, Luke Hildyard, head of UK policy at campaign group ShareAction, said the DWP is being “too timid about giving members a real say". 

 

"The government should not reject member-nominated trustees as they are not designed to represent the whole membership. Like other trustees, they act in the long-term interests of the scheme, with the added insight of first-hand customer experience," Hildyard said.  

 

The government should still encourage schemes to adopt measures other than MNTs that let the wider membership have their voice heard, he suggested, adding: "The announcement seems open-minded in this respect, and we look forward to engaging with ministers and officials on next steps.” 

For pension corporate sole trustees, which look after about a quarter of DB schemes – and where there are particular concerns about potential conflicts and lack of member voice – the playing field could become only slightly narrower, as the government said it will create clearer criteria on the "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".  

On trustees generally, following industry pushback the DWP has not gone for mandatory accreditation, saying it wants to build on the voluntary system that is in place. The trustee training offer meanwhile will be broadened "with a set of proportionate and targeted competence frameworks" that will include board-level skills and expertise.  

There will, however, be a trustee register, with the DWP saying it will work with the regulator to establish and test the feasibility of an initial directory by 2029. 

On skills, it plans to introduce a new principle-based requirement for trustee chairs to assess and monitor the collective skills of a board, rather than just those of individuals and report this to the regulator, giving TPR "greater visibility of board capability".  

Fears that trustee firms offering a range of other services could be broken up have not materialised. Instead, the DWP wants to work with TPR to reinforce expectations that trustees are independent. Similarly, some will be relieved that the DWP is not following through on a proposal to limit trustee tenure, as is being discussed in Australia.  

Professional trustees are pleased there is no wholesale change about their business model and requirements. Schemes will still be allowed to use the governance model that "best fit their size, complexity and membership profile", the Association of Professional Pension Trustees said. 
  

APPT co-chair Julia Yates said: "We also welcome the government's emphasis on the importance of building greater trust and confidence in the pensions system. Professional trustees have an important role to play in this, through independent judgement, high standards of governance and a clear focus on members' interests.” 

  

Co-chair Christopher Wheeler added: "Trustees' fiduciary duties, alongside their wider statutory and regulatory responsibilities, provide a clear framework for ensuring that decisions are made in members' best interests.” 

  

Wheeler argued that the current DWP consultation on trustees' investment and fiduciary duties "provides an important opportunity to reinforce understanding of how these principles should be applied in practice". 

However, others feel more could have been done. The Association of Consulting Actuaries is calling for greater transparency around potential conflicts of interest within professional trustee firms and reiterated a recommendation that TPR should have greater visibility of services provided to pension schemes by firms connected to their professional trustees. 

“As professional trustee firms expand into wider services, it must be clear who is working for whom. Integrated models can bring efficiencies, but trustees, employers, members and the regulator need to be able to see where potential conflicts of interest and concentrations of risk exist, and how they are being managed," said ACA chair, Chintan Gandhi.  

Plans to introduce mandatory minimum standards for administrators and a requirement to register with the Pensions Regulator have been welcomed by the Pensions Administration Standards Association. PASA is particularly pleased that the government wants to build on the group's standards. The planned requirements would focus on data quality and operational resilience, including being able to transfer admin contracts effectively. The government is also keen to ensure orderly market exits in case an administrator fails.

"Implementation will need careful planning, with realistic timescales and recognition of the capacity and skills needed to deliver change while maintaining day-to-day services to members," said PASA's chair David Fairs.

The Pensions Policy Institute on Wednesday published a paper sponsored by PASA which found that capacity for everyday administration does not necessarily demonstrate readiness to absorb major change or technological disruption, with specialists remaining essential despite greater automation. 

“This research challenges some comfortable assumptions. Fewer schemes do not automatically mean less work. More technology does not automatically mean better service. And capacity to manage today’s workload does not tell us whether the market could absorb a major provider failure tomorrow," said Fairs. 

The policy proposals strike the right balance between strengthening regulation and keeping a proportionate and flexible approach, said the Pensions Management Institute. 

"We particularly welcome the focus in the DWP response on implementing new minimum standards across pension scheme administration," said chief strategy officer Helen Forrest Hall. "High-quality administration sits at the heart of good governance and is fundamental to delivering positive outcomes for pension savers."