Background to TKU requirements

By way of reminder, the legislative requirements for trustees relating to TKU came into force in 2006 under the Pensions Act 2004. Subject to certain exceptions, the Act makes the following requirements:-

  • Trustees should be conversant with the trust deed and rules of the scheme, any statement of investment principles, the statement of funding principles and any policy documents adopted by the trustees relating to scheme administration; and
  • Trustees should have knowledge and understanding of the law relating to pensions and trusts, the principles of funding of occupational pension schemes, the investment of scheme assets and any other prescribed matters.

Detailed information on how trustees should comply with the TKU requirements are currently set out in version one of the Regulator's code of practice on TKU and associated scope guidance - the Regulator undertook a review of this code at the end of 2008. Following this consultation exercise a revised draft version of the code of practice was produced by the Regulator, seeking to make significant but not fundamental changes.

The new TKU regime

Once the revised TKU requirements are in force, trustees wishing to identify the complete list of topics with which they should be familiar will be able to refer to the Regulator's revised scope guidance. There are now three different versions of the scope guidance (relevant for different types of scheme). The scope guidance document applying specifically to defined benefit schemes has been expanded to include topics such as buy-ins/buy-outs, inducements from the sponsoring employer (for members to forego future benefits) and the obligations relating to personal accounts from 2012.

The key elements of the revised code of practice are as follows:-

  • Requirement for trustees to be aware of the essential elements of the scheme's trust documentation

Whereas the original version of the code of practice stated that trustees would not necessarily need to read the trust deed and rules thoroughly (and could, for example, identify the essential elements by consulting their provider, administrator or advisers) the revised code reverses this position. Under the new regime, the Regulator considers that in order to be aware of the essential elements of the scheme's trust documentation, trustees will be required to read the trust deed and rules thoroughly.

Given the length and complexity of some trust deeds and rules, this is undoubtedly a significant undertaking for trustees. Interestingly, the Regulator has commented that it was "…not persuaded by the argument that some documents are too difficult and cumbersome for trustees to use" and added that "if this is the case, then the matter should be remedied in whatever way is best for the trustee board in question".

Undoubtedly the task of reading through the trust deed and rules (and importantly understanding those rules) will be far more straightforward for trustees of those schemes with consolidated documents, as opposed to those where multiple deeds require to be read together to ascertain the current position.

  • Trustee Toolkit has become required study for new trustees

The revised code of practice refers to the Trustee Toolkit which is the programme developed by the Regulator that takes each item in the scope guidance as a separate learning objective. The trustee toolkit is to become required study for all new trustees, unless they can find an alternative learning programme covering all items in the scope guidance at the relevant level and within the timescale permitted.

  • Trustees facing imminent decision making

As with the original code, the Regulator continues to recognise that new trustees will need a period of six months from the date of appointment to complete the required learning, provided that if early trustee meetings are planned, trustees prioritise learning accordingly. In a change of emphasis, however, the new code provides that any trustees (even existing trustees who have not completed the learning) who are not equipped to make all the decisions which they need to make on behalf of the members (and who may not be in a position to satisfy themselves as to the various aspects of the governance of the scheme) must "rectify the matter at once".

  • Immediate requirements for chair of trustees (even if newly appointed)

The new code of practice also places more onerous responsibilities on any chair of trustees. Even if a chair of trustees is newly appointed, the Regulator states that the chair "must be equipped to be able to accept the particular responsibilities of the role" immediately from the date of appointment. The Regulator also provides that the chair may need to have a more detailed knowledge of the scheme than other trustees, particularly for large or complex schemes.

  • Trustee training requires to be certified

Following the introduction of the revised code of practice, there will require to be changes to the format of bespoke trustee training being provided to trustees. trustees will be expected to require trainers to ascertain the level of knowledge at the start of any training session and then certify afterwards that the trustees in attendance demonstrated an understanding of the topics covered. The Regulator has indicated a preference for particular training techniques (such as case studies, small group work and quizzes) to allow trainers to be sure that all trustees participating in training can demonstrate sufficient understanding.

Trustees and scheme managers should review their TKU requirements in light of the revised draft Regulator's code of practice/scope guidance to determine whether any additional training is required to plug any knowledge gaps. We will update you in a future E-Bulletin once the revised code and scope guidance are in force, but in the meantime please let us know if you require any advice on whether your current training programme is likely to be adequate going forward.