22 June 2004
Malcolm Wicks MP, Minister of State for Pensions
Speech for TUC Member Trustees Conference
Thursday 27th May 2004
(CHECK AGAINST DELIVERY)
Firstly I’d like to thank you for inviting me here to speak to you today and for your support in taking forward the radical pension reforms that are currently progressing through Parliament.
I’d like to congratulate the TUC for working with its members in developing the Member Trustees Network, and in organising today’s conference.
The trust structure of occupational pension schemes places trustees at the very heart of the UK’s private pension provision. The role of member nominated trustees is instrumental in taking forward our essential reforms as you play a vital role in ensuring that hundreds of billions of pounds in occupational pension savings are invested appropriately.
Many measures set out in the Pensions Bill will impact on your responsibilities and it is these reforms that I’d like to focus on today. I’d like to set out how things have changed and will continue to change as we move forward.
Recent history
The “best schemes” have had member trustees for many, many years. But it was the Pensions Act 1995 that brought the role of the pension scheme trustee into sharp focus and introduced us to member-nominated trustees.
For the first time it became a statutory requirement for all trustee boards to have at least one third member-nominated trustees – unless of course the employer opted out – that is, the employer obtained member approval for alternative arrangements.
But it soon became apparent that too many employers were choosing to opt out of the member nominated trustee requirements resulting in many boards being made up solely of company elected trustees.
There was clearly more for Government to do, if it wanted to ensure that the trustee board would always benefit from the specific skills, perspectives and experience that member-nominated trustees can bring.
But this wasn’t the only area where action was required. Looking at trustees as a whole, we found evidence that trustees sometimes have a lack of information, resources and expertise and lack of confidence about their role. Of course many have an excellent grasp of their duties – but there is no uniformity of standards.
The Myners report highlighted the important role which Trustees face in the decision making process. The review identified a number of distortions surrounding the effective decision making by trustees, such as lack of resources and expertise, lack of support and over-reliance on investment consulting firms for advice.
Additional research found that many trustees had few expectations about their role prior to appointment and that often little information was given to individuals concerning their role.
This was clearly an unsatisfactory situation – for trustees themselves, for scheme members and for employers. That is why the Pension Bill will bring about improvements of benefit to all parties in the pension partnership.
Where are we now?
The Pensions Bill will make huge progress in bolstering protection for scheme members and boosting confidence in pensions.
Important measures such as the Pension Protection Fund and Pensions Regulator will give people greater assurance that their pension is protected. New proposals, including £400 million from Government to support workers who have lost their pensions, will help to give people confidence in saving for retirement.
Other measures which improve member protection include the right to be consulted when significant changes are made to a pension scheme and the requirement for employers to offer transferred employees a minimum level of pension provision – where they had an occupational pension with employer contribution pre transfer.
These measures have attracted a lot of media interest but we are also taking action that will make essential changes to the role of pension scheme trustees which will help to build confidence amongst scheme members. These address the key challenges of ensuring that trustee boards always benefit from the skills of member-nominated trustees and improving trustee knowledge and understanding across the piece.
Member-nominated trustees
On member-nominated trustees, we are changing the law so that at least one third of scheme trustees are member-nominated. Employers will no longer be able to opt out of this. I am sure that everyone here today welcomes this important change but I am aware that many of you would have liked us to go further and require that at least half trustees are member-nominated.
Firstly let me say that we have no difficulty with the practice or the principle of one half of trustees being member nominated. On the contrary, we applaud the increasing number of schemes that go beyond the one-third minimum.
The clauses in the Pensions Bill that require trustees to have an appropriate level of knowledge and understanding are, in my opinion, far more significant and positive in this respect. And I will move on to these now.
Trustee knowledge and understanding
It is crucial to your reputation that ALL trustees are competent and confident in carrying out their duties, in particular in looking after and investing other peoples money in a prudent manner. The role of member nominated trustee is central to our reforms in raising the confidence of scheme members.
Over and over again I have heard it said that it is the member-nominated trustee who tends to stimulate real thought and debate around the board room table by asking the penetrating questions about an issue that his or her more experienced colleagues take for granted.
The new measures will require all trustees, whether member-nominated or otherwise, to have appropriate knowledge of things such as the trust deed and scheme laws, relevant pensions and trust law, scheme investments and scheme funding issues.
I am sure that some trustees may be worried about what they consider to be an additional burden. However, we do not expect every trustee to be an expert in every aspect of pensions law and administration – that would be unrealistic.
But we do expect trustees to be able to demonstrate at the very least a good, solid understanding of the scheme rules and a broad knowledge of issues such as the scheme’s investment and funding strategies and the principles that underpin them.
Having this ‘knowledge and understanding’ will not be a pre-condition of being a pensions trustee. Instead, regulations will ensure that new trustees are given a suitable period of grace to acquire the appropriate knowledge and understanding.
The Pensions Regulator will draw up codes of practice – in consultation with practitioners, that set out the level and type of knowledge that will be necessary. It is too early to say exactly what the code of practice will contain. But it will provide ‘best practice’ guidance on the relevant knowledge and understanding trustees need and suggestions as to how to get it.
Conclusion
The role of Member Nominated Trustee requires people like you who take on this role to demonstrate prudence, honesty and impartiality at all times when exercising powers as a trustee. You enable members to have confidence in their scheme and a sense of ownership.
The changes we are making through this Bill are designed only to strengthen this confidence and sense of ownership. They place no additional burden on the best trustees, but provide an important mechanism in raising the benchmark to ensure that ALL trustees are up to speed with their responsibilities.
Your role is recognised by Government as instrumental in taking forward these reforms and there is more work to be dome with the TUC. One thought to leave you with – another area where your support could be of immense value is with our programme of informed choice. We are working with employers to provide pensions advice and forecasts – officials have a combined pension forecast stand here today and I would encourage you to pay a visit. Ensuring individuals have the information they need to plan for their retirement is central to our reforms and to meeting the demographic challenges facing pension provision.