Pension trustee skills, capability and culture: a call for evidence

Following the launch of a „call for evidence“ on „pension trustee skills, capability and culture“ in the summer 2023, the Department for Work and Pensions (DWP) and the HM Treasury have now published their response to the consultation. In this response, the regulators briefly summarize the feedback they have received and outline the way forward on the issue.
To recall, in the „call for evidence“ the regulators sought to gather information to inform potential policy making in several key areas of pension fund trust management with the ultimate goal to improve the outcomes for pension savers. Among others, the regulators were investigating whether or not trustees have sufficient know-how about the regulatory framework they operate in and about investments to make informed investment decisions, how trustees utilize advisors and investment consultants, how trustees assess the quality of the advice received, whether or not the concept of fiduciary duties is well known among trustees, challenges trustees face to fulfill those duties, and much more. A detailed description of the issues addressed in the „call for evidence“ may be found in EventID 22241.
In their response paper now, the two regulators acknowledge the commitment and dedication exhibited by the majority of trustees and their competence, dedication, and diligence in managing pension affairs. It appeared that most trustees are well aware of their fiduciary duties and do not hesitate to engage with investment consultants to consult on investment decisions for their pension plans. Nevertheless, trustees would also welcome advice as to long-term investments and investments in alternative assets such as non-listed equities. Furthermore, respondents would welcome the setup of a register for approved trustees as such register would „improve oversight and accountability“. Finally, respondents made clear that the continuous focus on cost reduction and risk mitigation significantly hinders optimal (long-term) results for savers. Therefore, commenters would appreciate a shift away from costs to long-term value for savers as intended by the upcoming „Value for Money (VFM) framework“ for pension schemes.
With these responses in mind and in view of the upcoming VFM framework, the DWP and HM Treasury plan to take the following actions to address the issues raised by respondents:
(1) The setup of a trustee register: The establishment of a trustee register enjoyed widespread support among respondents, which is why the DWP pledging to assist The Pension Regulator (TPR) in implementing such register. The register aims to facilitate more effective regulation, improve communication of information and guidance, and assist TPR in targeting pension schemes that may require additional support.
(2) Accreditation of professional trustees: The DWP strongly encourages professional trustees to gain accreditation from bodies like the Pensions Management Institute (PMI) and the Association of Professional Pension Trustees (APPT). While not mandated currently, accreditation is expected to become an expectation under TPR’s new General Code.
(3) Updates to TPR Investment Guidance: TPR is revising its toolkit to align with codes of practice and guidance. This includes a focus on alternative investments, responding to feedback suggesting a need for more learning materials and guidance in this area. Additional guidance from TPR on investment decisions and alternative assets is expected by the year’s end.
(4) Engaging with employers in pension scheme selection: The regulators aim to challenge the emphasis on low costs and fees when employers select pension schemes for their employees. The proposed VFM framework intends to encourage employers to consider not just costs but also value and service for long-term outcomes. The HM Treasury and the DWP plan to offer further guidance to employers on factors to consider beyond costs when choosing pension schemes, promoting the focus on best value and outcomes for employees.