eShare have recently performed a survey of trustees to find out how they are coping with the new regulatory regime. The survey focuses specifically on the new responsibilities that trustees are taking on and how they are handling the burden.

It is clear that The Pensions Regulator wants to see significant change in the way trustees operate, but this is a fast process and is it fair to expect trustees to change this quickly?

 In recent years, pension schemes have faced strong regulatory changes with the focus primarily being on the trustee board.  Following the publication of the eShare Trustee Survey, our focus is on the progression of change from the trustee perspective and the level of responsibility they are taking back from scheme managers.

There have been several surveys performed recently throughout the industry.  What makes the eShare Survey different is that attention is directed towards how trustees are reacting to these changes and the tools they are being given.

Ultimately the question needing to be asked is: “Are we asking too much of trustees as lay people in requesting that they take on these onerous responsibilities?”

The Pensions Regulator came into force in April 2005, replacing OPRA and heralding a new tougher regulatory regime.  The new Regulator had powers like never before, and a clear intention to use them.  Since then there has been a whirlwind of activity for trustees to respond to.

Improving decision making, increasing trustee knowledge, wanting schemes to be run as a business and changing trustee behaviour are examples of the many tall demands being placed on the trustees.  These demands are to be met quite often by part time volunteers usually with other responsibilities outside of the pensions industry.  The

Regulator has made it clear that they plan to revolutionise the way trust based schemes are run; A consequence of this is seemingly ever increasing expectation of trustees to raise their game.

Since the early days when The Regulator first made their intentions known, trustees and scheme managers have waited in anticipation to see how these demands were going to manifest themselves in hard form.  Challenges were down the road but there seemed to be a sense of reassurance that once the Codes of Practice were published, we would know what we are supposed to do.

In reality, the published codes have far from provided the expected ‘to do’ list; they are little more than common sense guides.  This vagueness was also deliberate in forcing Trustee boards to think through the actions that were to be taken rather than simply request that the scheme manager simply implement a best practice checklist.

With The Regulator asking schemes to work out for themselves what they should do to ensure compliance, it brought more confusion and doubt to an industry already rocked by immense change and daunting regulation.

Part of the trustee board’s job is to absorb all the knowledge they can obtain regarding the scheme, employer, legislation, advice, the environment and every other possible factor that can affect a scheme.  Then collectively, the trustee board needs to process the information and draw conclusions regarding risk, decision making, employer covenants, funding and so on.

A tall order? - Well for a part time, non-specialist in pensions – potentially yes.  But trustees have a myriad of advisers and other resources to help them in their role and so long as they can invest the time in their role perhaps it is an achievable target.

The eShare Survey looks at how trustees have coped in this new regulatory environment and the tools they have been given to help raise their game.

The study concludes that many trustees have raised their game significantly in recent years; however, there are still a significant number who have failed to react.  The scheme managers seem acutely aware in most cases that the way the scheme is run needs to change, but this message is not always reaching the trustees.

In some well governed schemes the eShare Survey revealed a great dependence on the scheme manager for many aspects of the scheme, ranging from accessing information to being made aware of serious issues.  In some instances this has led to the scheme managers taking responsibility for key aspects of the way the scheme operates; meanwhile the trustees don’t even have support to help them manage the more mundane tasks such as maintaining files and documentation.

The introduction of new technologies potentially enhances the lives of the trustees and makes them more effective in their roles, however it seems in some cases we are asking trustees to perform a job without giving them even the most basic of modern tools.  For example, where trustees are external to the organisation they often aren’t even provided with a PC or Internet connection to help them perform their role.  These Trustees are rarely provided with e-mail and typically organise a free third party e-mail provider for themselves.

Being external to the scheme can mean trustees lack that connection which can leave them very isolated, vulnerable and exposed.  Any person taking up employment will usually be given access to information and tools to help them perform that role.  It seems there is serious neglect for trustees in this area in that the equivalent tools are virtually non-existent in most schemes.  For such an important role this is quite surprising.  Considering this, it is little wonder that significant dependence on the scheme managers, who typically do have all these tools, persists.

With better tools to manage the burden facing trustees, and with greater support, perhaps trustees can use their time more wisely focusing on the key issues affecting the scheme.

The eShare Survey does indicate that change may be on the horizon at last.  21% of schemes surveyed have implemented portal technology to help trustees access information themselves and some trustees receive automated alerts to failed internal controls.  This is undoubtedly making these trustees more effective, giving them more time to focus on the role they fill and making them better connected with the pension schemes they manage.  It must also provide a level of reassurance and make the role a much more comfortable one to fill.

For trustees who have yet to change the way they work, the position looks evermore unsustainable.  The Regulator has yet more cards to play.  Looming on the horizon is a seemingly innocuous bit of theory that is actually key to the whole issue of governance if you talk to the experts.  This theory could be described as “member transparency.”

The Regulator argues that the pressures that make businesses well run need to be introduced into pension schemes.  The equivalent of shareholders for a pension scheme is the membership.  To achieve this greater transparency is key.

Publishing buyout funding levels to members is only the start.  It looks like The Regulator is going to rip the walls down and let the members into the trustee meetings.

However in many cases the Trustees themselves don’t have direct access to the level of information the Regulator wishes to pass to members.

But did members really sign up to monitor their pension scheme?

The answer is probably not, they just accepted a job with an employer who provided a pension scheme.  In the end however this won’t matter, just like institutional investors assume responsibility for shareholders obligations, the media is likely to assume responsibility for monitoring pension schemes.  Those trustees who have yet to react will soon need to or the members will start to have better tools than they have themselves.

So are trustees up to the job?

Some say trustees are not in their roles because of their specialist pension’s expertise, they are guardians whose key role is to exercise a fiduciary duty.  Trustees are being asked to raise their game and go further than was ever expected in the past.  But yes, this is certainly achievable.

Most trustees are taking the new Regulator seriously, and they can reach the high standards of governance expected by The Regulator; but this can only be achievable if they are provided with the necessary equipment to help them perform their role effectively.  This includes more than just training and advice, it must prepare them for the role and give them all available tools to do the job.

Perhaps the more interesting question is: “Are trustees being given the tools to do the job?”