TPR publishes MNRPF regulatory intervention report

The Pensions Regulator (TPR) has published a report detailing its regulatory intervention relating to the Merchant Navy Ratings Pension Fund (MNRPF) between 2018 and 2020.

The regulator ultimately determined that it did not need to appoint an independent trustee with exclusive powers, as it had originally intended, as the trustee board personnel had almost entirely changed before the Determination Panel’s hearing in February 2020.

It stated that its intervention had resulted in the trustee and nominating bodies making “material and effective changes” to restructure its board and to improve governance on the whole, thereby reducing the long-term risks to the scheme and its members.

In May 2016, Muse Advisory published a report on governance failures within the scheme and inappropriate behaviour by the trustee directors, and made a series of recommendations for improvement, including the appointment of an independent chair.

However, the report did not resolve the governance issues as not all the recommendations were implemented, leading to the commission of a second report by Baroness Drake that was completed in August 2018.

The Drake report also made a series of recommendations, which again were not fully enacted by the trustee directors, and their criticism of the report and the independent chair appointed following the Muse report led to the resignation of the independent chair.

TPR opened its investigation in November 2018 and issued a warning notice in May 2019 after it did not receive “suitable proposals for the resolution of the MNRPF’s governance issues”.

TPR found that the board had failed to enact changes outlined in the Drake report, did not properly consider conflicts of interest, that there was a lack of trust and mutual respect, and the board had breached its duty to act in a prudent manner by not taking into account advice of independent professional advisers.

Furthermore, the trustee’s board failed to reach consensual decisions, act as one board and accept collective responsibility, it breached its duty of confidence, and there was “general poor behaviour” amongst the trustee directors.

TPR estimated that the scheme’s governance issues and strategic running had resulted in additional costs of over £1m.

Following the warning notice, the regulator set out a list of requirements: the resignation or removal of all incumbent trustee directors, who would not be allowed to act again as directors of the trustee; maximum terms of office for a trustee director of two five-year terms; a nine-member board split into three independent directors, three employer directors and three beneficiary directors (one of which should be the pensioner director); the removal of the dual majority voting system, replaced by a 75 per cent majority system for certain key decisions; nominating bodies to have the power to remove their respective directors; the trustee board to select the trustee chair from the independent directors; and additional specific requirements in relation to trustee director’s knowledge and skill, compliance with the code of conduct and implementation of a performance review framework.

The board agreed to all the requirements, except the requirement to remove its beneficiary directors.

As not all requirements had been met, TPR continued with its enforcement action and referred the matter to the Determinations Panel in December 2019.

However, between the referral and the Determinations Panel oral hearing, a “significant number” of changes were made to the trustee, including the resignation and/or removal of all but one of the incumbent trustee directors.

This led to the decision that the appointment of an independent trustee was not necessary, as all requirements had been met following assurances from the employer directors that the trustee directors would not act as trustee directors again.

“We expect trustees to adhere to high standards of governance,” TPR stated. “Where poor governance is identified, we expect trustees to take steps to remedy these governance issues.

“We will consider appointing an independent trustee to pension schemes in circumstances where trustee governance does not meet our required standards and trustees are not able or willing to remedy the governance issues.”

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