The changing role of the occupational pension scheme trustee
A hard copy of this report summary can be obtained by contacting Paul Noakes [E-Mail: Paul.Noakes@dwp.gsi.gov.uk] or by writing to him at the 'Social Research Division, Department for Work and Pensions Security, 4th Floor, Adelphi, 1-11 John Adam Street, London WC2N 6HT'.
Research Report No. 124
By Andrew Thomas, Nick Pettigrew, Sara Candy and Alper Hulusi
This report explores occupational pension scheme trustees' understanding of their role and their views on whether it has changed following the implementation of the Pensions Act 1995. The report is based on in-depth interviews with 43 trustees from a range of occupational pension schemes. The research was carried out by BMRB International, on behalf of the Department of Social Security.
The main findings of the study were:
- Trustees' knowledge of their role varied. Trustees of larger pension schemes (who had often received comprehensive training) and employer-appointed trustees tended to be most knowledgeable about their duties and responsibilities. Trustees of smaller schemes, who had generally received little training, appeared much less knowledgeable and often relied heavily on advice from their financial advisers.
- There were differences between schemes in their responses to the Pensions Act 1995. Frequently larger schemes had reviewed their practices in preparation for the Act, and the Act had contributed to the formalisation of existing practices (for example, the appointment of advisers had been placed on a more formal basis). Trustees of smaller schemes were less aware of the Act's contents, often relying on their financial advisers to ensure that the scheme functioned correctly and met the new requirements.
- Trustees of larger schemes felt that, following the Act, employer-appointed trustees seemed more able to distinguish between their job role and trustee roles, and that control of the pension scheme had shifted from the employer to the trustees.
- Generally trustees of large schemes were aware of, and had acted upon, new requirements relating to the Statement of Investment Principles (SIPs). Trustees of smaller schemes had not generally heard of SIPs.
- Among all trustees, awareness of Socially Responsible Investments was minimal.
- Most trustees were aware of the Occupational Pensions Regulatory Authority (Opra) and those who had an understanding of its role mainly saw Opra as a 'watchdog'.
Introduction to the study
This research examines how occupational pension scheme trustees perceive their role and responsibilities and considers whether there have been any changes to the role of pension scheme trustee following the implementation of the Pensions Act 1995. The study, which updates a ‘benchmarking’ study from 1996, was carried out by BMRB International on behalf of the Department of Social Security.
The study comprised 43 in-depth interviews with trustees from private sector occupational pension schemes. Trustees were selected to reflect a broad range of pension schemes in terms of size, scheme type (money purchase or final salary), insured or self-administered schemes, whether or not the scheme was contracted out of the State Earnings Related Pension Scheme (SERPS) and the type of trustee (member, employer-appointed and pensioner). Fieldwork was conducted between November 1999 and January 2000.
The appointment of trustees
The study found that, among larger schemes, the Pensions Act 1995 had helped to formalise the appointment process for member trustees. Many of the larger schemes had 'member trustees' prior to the reforms, although these were not necessarily 'member-nominated trustees' within the meaning of the 1995 Act. The research also found that whilst there were a number of different routes to becoming a member trustee, employer trustees were chosen by one of two routes: either by virtue of their role in the company, or following a request from the employer.
Training
Trustees rarely reported being given detailed information, prior to appointment, of what the role of trustee involved and consequently few had any expectations of the role. Whilst trustees of larger schemes received training in the position of trustee, both on appointment and subsequently, trustees of small schemes had not generally received any training, either on appointment, or since.
Whilst trustees of larger schemes viewed the Pensions Act 1995 as a catalyst for increased training, there had been no change in the provision of training for trustees of small pension schemes since the Pensions Act 1995.
Trustees of larger pensions schemes (particularly member trustees, and newly appointed trustees) often requested further training in order to become more conversant with accounting and actuVerdana practices and update their pension knowledge. Many trustees of small schemes showed little interest in training as they felt that it was for their paid financial adviser to deal with pension scheme issues.
The role and responsibilities of pension scheme trustees
Trustees of larger pension schemes had the best understanding of the role of trustee, and were able to list several aspects of the role, spontaneously, including; ensuring the funds are safe; ensuring the investments are obtaining a good return; and making discretionary decisions. Once prompted with a full list of possible responsibilities, trustees of larger pension schemes generally recognised most of them, although there was variation in the depth of their knowledge. For example some trustees were less familiar with the statutory requirements.
Trustees of small schemes, particularly those that were insured, had a very limited understanding of their role, even when prompted with a list of possible duties. In some cases they saw their role as no more than ensuring the funds were receiving a good return and that others were making sure the funds were safe.
Pension scheme practices
Trustees of larger pension schemes felt that the Pensions Act 1995 had, in effect, formalised the good practices that they had been operating prior to the Act. For example:
- The business and decision-making of the trustee board was now recorded more fully and accurately and trustee meetings placed greater emphasis on receiving reports from advisers and the production of more detailed minutes;
- The appointment of advisers had been placed on a more regular and formal basis;
- End of year audited accounts were produced – a new procedure for some of the medium sized schemes;
- Issues such as ‘whistle-blowing’, the Minimum Funding Requirement and the Statement of Investment Principles had been discussed and documented and formal written procedures had been produced in relation to the disclosure regulations and member nomination procedures.
Trustees of larger schemes felt that as a consequence of this more formal approach, employer-appointed trustees were now better able to distinguish between their work and trustee roles, and that responsibility for the scheme had shifted away from the sponsoring employer toward the board of trustees.
The degree of change in the practices of small schemes in the study appeared to be small. Where change had occurred, this usually included the production of audited accounts, a minuted pensions item on a management agenda, and in some cases a call for member representation. Most small schemes did not have member representation on their trustee boards, their pensions-related practices were largely unchanged and they relied extensively on the financial adviser to ensure that the pension scheme was complying with the legal requirements.
Relations with other parties
Relations with other parties connected to the pension scheme were generally good, although there were differences between schemes in terms of the contact trustees had with these parties. Trustees had direct contact with the scheme administrator and independent financial advisers, but a more distant relationship with insurance companies, actuaries, legal advisers and investment managers (contact with these parties often occurred via the scheme administrator or the financial adviser).
Overall trustees felt relations with the sponsoring employer were good. Tensions only occurred in those circumstances where employer-appointed trustees were perceived to be repeatedly taking the side of the sponsoring employer.
Statement of Investment Principles (SIPs)
The 1995 Pensions Act requires pension schemes (not insured schemes) to provide a written statement of the principles that govern their investment decisions - SIPs. Among larger schemes, investment principles were often said to pre-date the 1995 Act, although the impact of the Act was to ‘sharpen up’ existing statements and in other cases provide the opportunity for pension schemes to produce a Statement of Investment Principles.
Trustees of small pension schemes were not generally aware of SIPs.
Socially responsible investments
Trustees of small and medium-sized schemes, without exception, were not aware of the requirement that from July 2000, pension schemes must include in their Statement of Investment Principles whether they have taken social, environmental or ethical considerations into account in their investment policy. Awareness amongst trustees of the large schemes was minimal.
Trustees had mixed reactions towards socially responsible investments. While viewing the principle as worthy, they felt schemes were unlikely to adopt such a policy. The reasons for this were two-fold. First, such investments were felt to produce smaller returns than conventional investments and were thus at odds with the principle of maximising returns for members; and secondly, there were concerns about the difficulties in agreeing a definition for such investments.
The Occupational Pensions Regulatory Authority (Opra)
Awareness of Opra was higher amongst the trustees of larger pension schemes; some trustees of the small schemes were not aware of Opra.
Even amongst those who were aware of Opra, understanding of their role was minimal. Seen as a relatively new organisation that had yet to define its role, Opra's image was more as a policing organisation than an information-provider. It was also seen as having a reactive rather than pro-active approach.
Publication details
Thomas A., Pettigrew N., Hulusi A. and Candy S. (September 2000) “The Changing Role of the Occupational Pension Scheme Trustee” (DSS Research Report No. 124) Leeds: CDS
Other publications on pensions
Hales J. and Stratford N. (2000)“ Employers' Pension Provision 1998” (DSS Research Report No. 123). Leeds: CDS
Forth J. and Millward N. (1999) “Employers' Pension Provision 1996” (DSS Research Report No. 98). Leeds: CDS
Pratten C. and Satchell S. (1998) “Pension Scheme Investment Policies” (DSS Research Report Series No. 82). Leeds: CDS
Bunt K., Winterbotham M. and Williams R. (1998) “The Role of Pension Scheme Trustees” (DSS Research Report No. 81). London: CDS
Bunt K., Howells D. and Winterbotham M., (1998) “Experiences of Occupational Pension Scheme Wind-Up” (DSS Research Report No. 75). London: TSO
Dundon-Smith D., Hales J., Chetwynd M., Thomas A. and Keegan J. (1997) “Pension Scheme Inquiries and Disputes” (DSS Research Report No. 66). London: TSO
Casey B., Hales J. and Millward N. (1996) “Employers’ Pension Provision 1994” (DSS Research Report No. 58). London: TSO