May 2007

Decision making is next for trustees

In continuing to improve standards in governance, it seems decision making is next in the firing line as Trustees are to be made more accountable.

In 2005 soon after the new Pensions Regulator was established, one of the objectives frequently mentioned was a desire to “improve trustee decision making”. 

They issued a code of practice on Trustee Knowledge and Understanding which would more aptly have been called the Trustee Training code.  Other than a snippet regarding familiarity with key documents, they have largely ignored the fact that Trustees need also to have good knowledge of the arrangements they operate to make good decisions.

So little has been mentioned about improving decision making you could be forgiven for thinking that it had been filed away under “too difficult”.

However things are starting to change.  The Pensions Regulator Chief Executive, Tony Hobman has recently stated that a key risk area in pensions was poor trustee decision making.

Pension Ombudsman, David Laverick, mirrors this view.  Laverick wants to see trustees made more accountable for their decision making.  During his speech at the recent OPDU conference, Laverick stated he feels the current model for a pensions trust appears flawed relative, for example, to the model for hospital trusts.  Pension scheme trustees are less responsible and are not held accountable for their decisions unlike their counterparts in a hospital trust.

The new theme published by the Regulator in their Corporate Plan was “changing behaviour”.  Similar to improving decision making, changing behaviour was touted early on and is now being rekindled.

Having well trained trustees is unarguably an excellent idea, however it is only a small part of the reforms that The Regulator is driving forward. 

To improve decision making, Trustees must have excellent knowledge of their own scheme and need to be able to question and research that knowledge.  They are ultimately responsible for all aspects of the operation of fairly complex beasts and as such their involvement has to go far beyond a periodic meeting.

Trustees need to be able to make decisions more quickly by having greater interaction.  Anyone involved with a trustee board who has requested a decision knows that at best it may be made at the next trustees meeting potentially several months away.  At worst if the Trustees have questions it can take up to a year to obtain an answer.

Changing behaviour is going to require trustees to be better connected with their pension schemes.  The Regulator recently used frequency of meetings as a measure of good governance – involvement in the scheme must extend beyond this.

Trustees need to be better connected to the schemes they run, have full knowledge available and be confident that they are being well run.  They need to have full awareness on an ongoing basis of the issues they face.  It is not sufficient to have access to some documents; they need a live view of the scheme, the issues facing the scheme and the key tasks at hand. 

If trustees continue to be part time volunteers then they need tools to help provide them with this management information.