Nadine Wojakovski examines whether the Government's proposal to make trustee boards comprise of half MNTs is welcome

This past April the British Airways pension trustee board was rocked by resignations in a matter of weeks. Three member nominated trustees (MNTs) resigned as they disagreed over the board's decision to move from RPI to CPI indexation, which would effectively reduce pension payments.

These resignations by the APS trustees, although rare, demonstrated the power of member nominated trustees to represent the best interests of scheme members. It also put into context the value of the government's proposal to increase MNTs from one third to 50 per cent of the trustee board.

Currently, trust based pension schemes are required to have at least one third of the board of trustees to be selected by their members and the proposals to move to fifty per cent have divided the industry somewhat.

When the DWP published its findings last year it concluded that the proposal was generally seen in a positive light by MNTs and trade union representatives but support was less evident with employers and employer nominated trustees (ENTs).

Barry Parr is a member nominated director of the Orange DC scheme and co-chair of the newly formed Association of MNTs, the AMNT. He says the number of MNTs now in post is probably more than people imagine. Of 3,261 registered trust schemes (with over 100 members, trustees in place and not using a corporate trustee body), there are 8,729 employer appointed trustees (EATs) and 5,825 member nominated trustees (MNTs), which on average means that each scheme has 2.7 ENTs and 1.8 MNTs giving a ratio of about 3:2. This means that MNTs represent forty per cent of the trustee board which, he says is encouraging.

"I think sponsoring employers are recognising the value of MNTs and there is a tendency amongst bigger schemes to go towards 50 per cent," observes Parr. In the existing trust of the Orange scheme (which is in the process of changing as it is in a merger with T-Mobile) it has three EATs and two MNTs. In his experience all trustees put member interests first when working in that role. A big caveat, however, is that the Orange scheme is a DC scheme, so does not have the same issues as a DB scheme which might generate conflict.

"Probably the most testing environment would be in a DB scheme where the covenant is in question, where there is a big deficit, where contributions or changes must be negotiated and where there is impact on the employer's balance sheet," notes Parr.

Janice Turner, also co-chair of the AMNT and an MNT on the defined benefit BECTU staff retirement scheme shares the DWP’s proposal of a move to 50% as she believes they can provide a very real link between the board and the scheme members. "It means the members have more confidence in the scheme and the trustees' decisions," she argues. "Having more MNTs means that in practice more information can flow between the board and the scheme members and that is always a good thing."

Moreover, MNTs who are also members of a trade union are at an advantage because they have the additional benefit of the TUC's trustees network. In particular it can benefit the unionised workforce because the trustee will most likely be in attendance at union meetings and help ensure greater understanding of the scheme.

But having 50 per cent MNT representation is not supported across the board. Danny Tsang, partner and head of the pensions team at law firm K&L Gates, advises employers and trustees on their pension schemes.

While Tsang concedes that 50 per cent does sound good in theory as it would increase the presence and confidence of MNTs and make them more vocal in meetings, in practice it is difficult.

"We have seen that smaller schemes are finding it hard to recruit more MNTs especially as employees don't want to take time off work," says Tsang. He has seen that the larger schemes often have 50 per cent MNTs as they have the time and cost resources to do so. With trustees typically having four meetings annually the costs involved around planning for meetings and taking time off to travel are substantial. Another MNT on board would increase these costs plus require trustee training. This, he says, is too onerous on smaller schemes.

Becoming a trustee is a huge learning curve and the level of training given by the scheme ranges across the spectrum from very minimal to very detailed. At Marks & Spencer, for example, new trustees receive an information pack containing governance documents and are required to attend some NAPF courses as soon as possible. They also complete the Trustee Toolkit and sit the PMI award in trusteeship. This gives them a level of confidence and undoubtedly the ability to effectively challenge advisers.

By contrast, many MNTs of smaller schemes are not equipped with the necessary tools to debate and challenge trustee issues in the boardroom.

While ENTs tend to be from senior ranks of the company and are very familiar with boardrooms this is not always the case with MNTs. They may be from the shop floor and from junior ranks and consequently it is very important for them to have training which will give them the confidence to deal with a new and unfamiliar situation. Also, some employers simply do not understand the demands of the role and don't give MNTs enough time off to prepare for meetings or to complete training. A lack of employer support and understanding can be a major hindrance.

Baker Tilly pensions audit manager Gerard Weide is an MNT of his own scheme and through his work has observed MNTs from other schemes. He concludes that it is difficult for smaller schemes with owner manager businesses to attract MNTs and to invest in their education and training. So, where there is a lack of training and thus an inability to make informed decisions he believes it does not make any sense to increase the presence up to 50 per cent.

On the contrary, increasing them, he says, "could be a bigger risk to a trustee board as a whole unless you have the time and effort to get up to speed with the regulations and information". As he aptly puts it: "MNTs can be a valuable and effective addition to the trustee board if they have the support they need."

Having seen the lack of education amongst some MNTs he warmly welcomes the recent launch of the Association of MNTs which is focusing on training and will be championing best practice. Indeed in nine months the organisation has attracted in the region of 180 members so far.

Ultimately, Tsang of K&L Gates believes the system works as it currently stands and argues that making MNTs represent 50 per cent of the trustee board mandatory would not be a good thing. "If there's too much red tape schemes may opt out of trust based schemes and go for contract based schemes instead." Personally, he believes if change is needed, then it may be worth considering independent trustees as an alternative to the current MNT requirements. He feels that employers should continue to have the flexibility to choose the remainder of the trustee board.

The resignation of three British Airways pension trustees demonstrates how training and confidence are key to the effective running of a trustee board. Following the resignation of one of the trustees – Cliff Pocock – he explained that he believed the trustees had "an obligation" to fulfil expectations if it was "legally possible to do so". Armed with the necessary knowledge and confidence he was able to perform his role as an effective trustee, namely to challenge and fight for what was "in the best financial interests" of the beneficiaries.

Nadine Wojakovski is a freelance journalist

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