Pension trustees are forced to go above and beyond their role and are now being cast as “guardians of members’ decisions” due to new regulatory pressures, industry insiders have told FTAdviser.
John Reeve, who is senior consultant at Premier Pensions, said the new freedoms put defined contribution scheme trustees in a “really difficult” position in relation to regulatory guidance that states they must help members to “optimise” their retirement income.
Mr Reeve said with the new complex world of at-retirement options and variance in terms of what is offered by schemes and providers, trustees are no longer merely guardians of savers’ funds but also “of members’ decisions and how they make those decisions”.
Margaret Snowdon, JLT trustee solutions director and chairman of the Pensions Administration Standards Association, added the ‘guidance guarantee’ will put also more pressure on pension administrators and trustees in terms of their obligation to signpost members to Pension Wise.
Ahead of the reforms debates have focused on the potential for poor decisions by individuals and attention focused on a series of Pensions Ombudsman decisions which highlighted the statutory right to transfer and occasions when this would not apply.
In terms of the options offered by schemes, the Financial Conduct Authority has moved to put new independent governance committees on the front line of reviewing at-retirement selection - and having the option to refer refusals to facilitate alternatives directly to the regulator.
Mr Reeve pointed to the ‘comply or explain’ approach at the The Pensions Regulator, which regulates occupational schemes. This requires money purchase trustees to demonstrate how they comply with a code of practice that came into effect in November 2013.
Statements inform members, employers and the regulator whether the scheme meets the DC ‘quality’ features, or otherwise how their approach is in members’ interests.
Mr Reeve said that one of the statements that forms part of ‘comply or explain’ is that trustees must do ‘all they can to help members optimise their members income at retirement’.
“That’s a really big statement. We all want to help people optimise their income in retirement. That’s great, that’s a lovely sentiment; but [it is more difficult] when you have actually got to prove that you have done everything you can to help members optimise their income.
“The best way you can help optimise your income retirement is actually to pay more in. Trustees have always worked on the basis that actually the employer sets the income. How do you help members optimise income retirement without knowing if they are married, if they have a heart condition etc? It’s a really difficult thing to do.”
Mr Reeve added that trustees take the role seriously, but that the dynamic has changed from a paradigm where clients would just give money to the trustees to make sure it is safe and secure.
“Now... they have got a lot more responsibilities at a time when it has become more and more complicated and their role has fundamentally changed.
“It’s completely different to what trustees signed up for so not only are they the guardians, they are also the guardians of members decisions and how they make those decisions.”
Ms Snowdon added if there is a slight risk as under the current legislation trustees can delay transfers, however that may bring schemes into disrepute if they try and prevent people doing what they they have the right to do so and could be “self-defeating”.
“I think it’s sort of interesting that when you ask companies what you are planning to do they are looking blankly because most of them don’t quite know what to do.”
ruth.gillbe@ft.com
