David Adams looks at The Pensions Regulator’s Trustee Toolkit, and the other training opportunities available to those charged with managing pension fund assets

Imagine: you’ve spent years saving for your retirement, but the people in charge of deciding how that money is managed and invested are a bunch of bungling amateurs. This is exactly what is happening if a scheme’s trustees are not adequately trained. If the trustees don’t know what they’re doing then everyone, from the sponsoring employer to scheme members, is in serious trouble.

A trustee’s responsibilities, as defined by The Pensions Regulator and enshrined in the Pensions Act 2004, include ‘an appropriate level of knowledge and understanding’ (TKU) about the scheme and other relevant subjects including pensions law and investments. This is vague, but necessarily so, given that no two schemes are the same – and that it is important not to discourage people from becoming trustees.

“The key to trustee training is always to keep it proportionate to the size of the scheme,” says Baker Tilly head of pensions Ian Bell. “Trustees are not expected to be experts, but should have sufficient knowledge to challenge advisers in an appropriate way.”

But Pitmans Trustees managing director Richard Butcher says there is sometimes a worrying lack of urgency in the attitude to training displayed by some trustees. “One frustration all professional people in the industry have is going to the trustee meeting and hearing people say, ‘Oh, sorry, I’ve not done the Trustee Toolkit yet, I’ve not had the time’,” he says. “Which is understandable, but on the other hand, this is something you really have to do.”

The toolkit is the regulator’s online learning programme, designed to help all trustees of occupational schemes achieve the required level of TKU. It is difficult to find anyone with a bad word to say about this well-designed, user-friendly, comprehensive introduction to trusteeship. It has also been revamped recently (the new site went live in March), following extensive consultation with existing users and the Association of Member Nominated Trustees (AMNT).

The trouble is, actually starting or completing the programme is only theoretically compulsory. “The regulator is aware of about 140,000 trustees working on schemes, but about 20,000 have started the toolkit and only 9,000 have completed it,” says Pensions Management Institute (PMI) technical consultant Tim Middleton. “So a significant majority have never made any serious effort to update their skills as required by law.”

There may be some trustees who splutter a little when reading this, before perhaps pointing out that they do have a good understanding of their role and responsibilities even if they haven’t completed the toolkit, perhaps because they have been trustees for many years, or possibly because, yes, they really are very busy people. “People being busy is all very well, but is not actually a defence in law,” Middleton replies. “It doesn’t mitigate their responsibilities.”

Those responsibilities are getting more onerous all the time, as the structures of schemes and the relationships between them and their members change. Topics upon which trustees now need to be well-informed include (for trustees of most DB schemes) de-risking options: the differences between buy-ins and buyouts, or the implications and means of managing longevity risk.

They need a good understanding of investment strategies being suggested or implemented by fund managers. They need to understand how scheme administration works. A need to understand forthcoming or proposed legislation is also crucial, from how auto-enrolment will affect a scheme to the possible implications of the government’s Guaranteed Minimum Pensions (GMP) equalisation proposals, or of EU directives. And knowledge is power when it comes to dealing with scheme advisers.

“Trustees need more confidence in selecting advisers and having regular beauty parades of advisers to make sure you’re employing the best people,” says AMNT co-chair Janice Turner.

So how effective is the training currently available? “It’s evolving,” says JLT Benefit Solutions senior consultant Bryan McDaniel. “If it’s investment most fund managers run seminars. That will give trustees a basic grounding. They can then have more focused training as part of a trustee meeting. So you could engage in specific training around LDI [liability driven investment], for example. Sometimes trustee meetings have a sub-committee for training. It depends on the size of the scheme and what expertise is required.”

This kind of semi-informal, on the job education still often forms a significant component of the training most trustees experience. It is difficult to judge its effectiveness.

The Trustee Toolkit should always be the starting point, says Capita Hartshead consulting director Sue Curley. “The most important thing is to complete the toolkit,” she says. “That certainly isn’t a walk in the park: it makes trustees sit down and put the time in.” McDaniel notes that “even trustees who are investment managers have found those tutorials very useful”.

A regulator spokesperson confirms that, up to 22 April 2012 the toolkit has had 43,746 users, including 24,328 trustees who have completed 103,391 modules. 8,638 certificates of completion have been issued, 7,104 to trustees. “These figures only tell part of the story,” adds the spokesperson. “We know that many people use the toolkit to structure their own training programmes. Trustees will often complete a toolkit module as a group to discuss how the topics apply to their own scheme.”

Bell is more cautious in his praise. “If trustees do the toolkit and then a situation it covers doesn’t arise in the short term that knowledge may be gone,” he says. “Trustees aren’t doing this seven days a week, they’re doing it one day a quarter, so retaining that knowledge base is very difficult.”

The PMI’s Awards in Pension Trusteeship (APT) qualifications are also highly regarded. Trustees must work through units covering law, investment and scheme management and pass an independently assessed examination. Fans of the PMI qualification, like Curley, believe the legal requirements for trustees to prove a good level of knowledge and understanding could be made more exacting. Middleton points out that the regulator does relatively little to enforce TKU requirements at present.

Beyond the toolkit and the PMI qualifications lie the many courses run by investment, actuarial, legal and consultancy firms, as well as by the other industry associations. Some are good; others less so. The AMNT encourages its members to share feedback on them.

One important shortcoming Butcher highlights is a relative lack of training for DC scheme trustees. The Open Market Annuity Service’s (TOMAS) director Graeme Riddoch believes that in too many cases DC scheme trustees pay almost no attention to what happens to members after their retirement, so do nothing to help those with smaller pots find the best annuity deals or to consider using enhanced annuities.

Yet overall my interviewees believe trustee training is improving. A bigger problem may be that they don’t have enough time to do it. “Currently the regulator says trustees are entitled to ‘appropriate’ amounts of training,” says Turner. “That’s fine if someone’s in a position to shift their workload and make time for the training. But many people, especially member-nominated trustees, don’t have that choice. The AMNT wants the regulator to specify a minimum entitlement of days off to train. At the moment it’s not giving them the support they need.”

Bell believes more attention should be paid to training the chair. “The chairman’s role is different: their knowledge, experience and training needs to be better than some of the other trustees,” he says. Adequate attention should also be paid to the question of identifying and mentoring future chairs.

Every scheme is different, so performing well as a trustee of one does not guarantee success in that role for another. Whatever the size or nature of the scheme, trustees should be aspiring to improve their knowledge all the time, says Butcher. “I’ve been doing this for 27 years and I’m constantly learning new things,” he says. “Lesson one should be ‘you’ll never know everything’.”

All a scheme’s stakeholders depend on their trustees making enough of an effort to ensure that they do, at least, know enough.

Written by David Adams, a freelance journalist

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