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21st century trusteeship - what does TPR expect?

Over the last few years, alongside communications on how it expects defined benefit pension schemes to be funded, The Pensions Regulator (TPR) has also produced copious materials on how it expects schemes to be run. This culminated in its 21st Century Trusteeship programme to raise the standards of governance across all pension schemes. 

It is important to note that, whilst proportionality is a relevant consideration, TPR does not consider scheme size a barrier to good governance.  Historically, TPR has focussed its intervention efforts on larger schemes, as they represented the greatest risk (both to the Pension Protection Fund and in the number of members that could be impacted).  However, over the last few years TPR has made it clear that its guidance applies equally to small schemes and that it is taking greater measures to check and enforce compliance in this sector.

TPR recognises that running a pension scheme, and being a trustee, can be complex and challenging.  However, it expects trustees to be committed to the role and to invest the time necessary to run the scheme properly.  TPR has powers to gather information, instruct specific actions and ultimately to issue fines and/or ban people from operating as a trustee.

TPR has provided its 21st Century Trusteeship guidance under ten subject headings.  We provide a broad summary of the guidance below.  If you are a trustee, then you are highly recommended to read the full guidance on the TPR’s website. 

1. Good governance

Good governance is the bedrock of a well-run pension scheme.  Good governance is about having motivated, knowledgeable and skilled trustees in place.  It’s also about having the right structures and processes to enable effective, timely decisions and risk management, and to provide clear scheme objectives.  It is a trustee’s responsibility to make sure their scheme is well run and they should spend time and resources getting the scheme governance right.

Get the basics right first:

  • regularly discuss and review the governance of the scheme;
  • pay the levy on time;
  • complete the scheme return on time and accurately;
  • update scheme information on Exchange as soon as possible when things change;
  • respond to TPR’s requests for information about your scheme and report problems and issues, including late payment of contributions and breaches of the law;
  • if the scheme provides defined benefits, complete the scheme valuation and submit the recovery plan on time; and
  • if the scheme provides money purchase benefits, produce a chair’s statement that is good quality and on time.

If trustees fail to do the basics, TPR will take action. TPR also considers failing to get these basic legal duties right is likely to be a sign of wider failings and they will pay closer attention to schemes that they believe pose a greater risk.

2. Clear roles and responsibilities

Trustees are accountable for all scheme activities even if they delegate some of the day-to-day functions.  So, they need controls in place to monitor and make sure that all the activities they are accountable for are delivered.  Being clear on the roles and responsibilities of all the main participants involved in running the scheme is essential.  For delegated matters, trustees should decide and document how decisions are made and escalated and who does this.

3. Clear purpose and strategy

Setting a clear purpose and strategy is essential to managing the scheme effectively and getting good outcomes for members.  Having a business plan will enable trustees to plan ahead and improve their ability to comply with legal requirements at all times.

4. Trustee training and improving your knowledge

Trustees need to have the knowledge and understanding to perform their role within six months of their appointment.  The Trustee toolkit is TPR’s free online learning programme.  TPR expects all trustees to complete this unless they arrange alternative equivalent learning.  Trustees also need to have relevant knowledge and understanding of key scheme documents like the trust deed and rules and statement of investment principles.

Learning and development is a continuous process.  Trustees should annually assess their knowledge, understanding and skills and evaluate the decisions they have made over the past year. This will help identify strengths and weaknesses and any gaps, which can then be addressed in a training plan.  This should be considered at both the individual and board level, and in the context of the scheme’s business plan. 

Trustees should consider setting aside time in trustee meetings for training, and invite people (for example, advisers) to provide training that’s relevant to upcoming events or to develop trustees’ knowledge in time for key decisions.  Keeping a log of learning activities is recommended.

5. Skills and experience

Having a diverse board (for example, members with different backgrounds, experience, skills and demographics) will help trustees manage their scheme well.  When recruiting and selecting trustees, the needs of the board as a whole should be considered, as well as considering if the new trustee is fit and proper.  

Trustees should review the performance and effectiveness of the board annually and refer to the objectives in the business plan.

6. Advisers and service providers

Trustees should appoint good quality professional advisers and service providers to help them run their scheme well.  However, trustees should retain sufficient oversight of the tasks they delegate to others and regularly review and manage their performance.  Trustees need to fully understand the advice they are given – scrutinising and challenging it if necessary.

7. Managing risk

Good risk management is a key characteristic of a well-run scheme and an important part of a trustees’ role in protecting members’ benefits.  Trustees are legally required to have adequate internal controls in place for the scheme, and this includes managing risk.

Trustees should have systems to help identify risks in:

  • the way the scheme is governed and managed;
  • the scheme’s investments;
  • administration processes; and
  • the way the scheme communicates with members.

In particular, trustees should be vigilant to key risks such as pension scams and cyber security threats.

Trustees should use an agreed evaluation process to rate risks based on their magnitude (likelihood of happening against impact).  They should then record the identified risks in a risk register and review this regularly (at least once a quarter).  They should establish mitigation strategies to manage the risks and take advantage of any opportunities that they may also present and regularly review them to ensure they remain effective.  They should also continually review exposure to new and emerging risks.

Risk appetite is the amount and type of risk that the scheme is willing to take in order to meet its strategic objectives.  Risk tolerance is the amount of risk that a pension scheme can feasibly cope with.  Both should be high on the trustees’ agenda.

Trustees should carry out a detailed analysis of their risk management framework at least annually to identify whether the existing systems are still fit for purpose.

8. Managing conflicts of interest

A conflict of interest can arise when a trustee is required to make a decision that is in the best interest of the scheme members but where the trustee may also have a personal interest in the decision.  For example, these could arise in relation to employer-appointed trustees, who are also company directors, when agreeing operational costs with the employer such as those relating to administration or communications.

Trustees must be aware of possible conflicts within the scheme.  Whilst conflicts of interest aren’t uncommon, trustees are legally obliged to have adequate internal controls in place. This includes having a process to identify and manage any conflicts of interest among those involved in running the scheme, including trustees, service providers and advisers.

Trustees should make sure they have a conflicts of interest policy in place that maps out their approach to managing conflicts if they arise.  The policy should include the trustees’ approach to managing conflicts with advisers and service providers (who should have their own conflicts policies).  Trustees should also identity and document conflicts of interest in a register, which should include details of the conflict and the actions taken to resolve them.  A register of gifts and entertainment that have been offered to trustees should also be maintained, recording their value, whether they were accepted and the action that was taken.

9. Meetings and decision making

Trustee board meetings are a very important part of maintaining regular oversight of the running of a scheme. Trustees should ensure that adequate time is allocated to discussing important strategic issues as well as scheme specific issues needing immediate attention.

An agenda should be compiled and circulated to the board at least two weeks before the meeting.  The scheme’s business plan can be used to help focus the agenda points on strategic issues.

For meetings to be productive and effective, trustees should arrive prepared to discuss each item on the agenda.  It’s particularly important that trustees are clear on the decisions that need to be taken and the process for making those decisions. Trustees are accountable for the decisions they make and they should make sure that they have access to all of the relevant information before acting.  Minutes should be taken at every meeting, paying particular attention to any decisions made, the reasons behind them, and any action points that need to be taken away.  Trustee boards should meet often enough to maintain effective oversight and control, which in most cases will be at least quarterly.

The trustee chair should encourage open debate during the meeting, and guard against any single viewpoint dominating the discussion.  The chair or trustee secretary should also aim to keep the discussion relevant and allow enough time for questions.  An experienced and professional trustee secretary can help you to efficiently manage your meetings so that nothing is missed.

10. Value for members

Making sure your scheme members are receiving value for money is fundamental to being a good trustee.  Trustees of money purchase schemes have a legal duty to assess costs and charges and include the assessment in the annual chair's statement.  While it isn’t currently a legal duty on defined benefit schemes to annually assess value for money, TPR strongly recommend trustees do so to help ensure good member outcomes.

Value for members does not necessarily equate to ‘low cost’.


"TPR does not consider scheme size a barrier to good governance"

"Trustees are accountable for all scheme activities even if they delegate some of the day-to-day functions"

"An experienced and professional trustee secretary can help you to efficiently manage your meetings so that nothing is missed"