What makes someone a professional trustee? Scheme governance requirements are increasingly heavy, and there is a growing trend to recognise the time commitment and responsibility by paying trustees – but is an individual a professional trustee just because they are paid? Increasing expectations of trustee knowledge and understanding, and higher penalties for professional trustees in some circumstances, make it important to know on which side of the line a trustee falls.
New definition: course of business, or ‘promoting’ expertise
The Pensions Regulator suggested last year that professional trusteeship should be defined by reference to whether or not an individual (a) received payment beyond expenses or an honorarium for acting as a trustee, or (b) was an expert in trustee matters. Following consultation, the new policy document sets out a much more helpful framework, which reduces the risk of lay trustees being caught accidentally within its scope, even if they are paid or have longstanding trustee experience.
The new definition focuses on trustees who act ‘in the course of business of being a trustee’, but helpfully clarifies that trustees who are remunerated for their trusteeship won’t normally be considered to be in the professional trustee category if they have a membership/employment link with the scheme or relevant corporate group, and they do not act or offer to act as a trustee in relation to any unrelated scheme.
This means that a trustee or trustee director who is appointed to act in relation to a scheme of which he or she is a member (or an employee of the sponsor), won’t normally be treated as being a professional trustee even if he or she has acted in that capacity over a very long period, and even if he or she is paid.
The definition sensibly also caters for lay trustees who act for multiple related schemes. We’ve already helped a number of organisations to improve governance and efficiency by consolidating multiple group schemes under one trustee board, and this approach is likely to become more widespread.
Crossing the line from lay to professional
Lay trustees may cross over to being considered professional if they hold themselves out to the trustees or a sponsor of one or more unrelated schemes as being an expert in trusteeship (whether paid or unpaid). It’s worth noting that an individual who is a lay trustee for the scheme of which they are a member, and subsequently offers their trustee expertise to an unrelated scheme – for example, as a favour for a charitable organisation – could cross the line into professional trusteeship and would then be considered by the Regulator to be acting in the course of business in relation to both trustee appointments. That’s the case even if they were unpaid in one or both capacities. However, we think there is a low risk that lay trustees would cross this boundary accidentally.
Many trustee boards are reviewing their trustee appointment procedures to include a requirement for trustee candidates to set out the experience that they believe qualifies them for the role of trustee. An individual who represents or promotes themselves in this way where they have a membership or employment link to this (or a related) scheme/employer does not run the risk of being considered to be acting in the course of business of being a trustee.
We are pleased that the Regulator has recognised that remuneration does not automatically indicate that a trustee should be treated as a professional and held to the higher standards (and penalties) that this would entail. The revised definition (as compared to the consultation version) achieves certainty for the typical long-serving lay trustee acting in relation to the scheme of which they are a member, and takes the focus off the subjective question of an individual’s level of expertise. We very much appreciate the Regulator’s willingness to engage with us and others in clarifying the professional trustee definition, to ensure that higher standards can be expected from professional trustees without discouraging current and future lay trustees from playing their vital role in occupational scheme governance.
What are the implications of being considered professional?
The categorisation of professional trustees is not the end of the story though: even for lay trustees who avoid the ‘professional trustee’ tag, the Regulator may take any remuneration and particular expertise into account when calculating a penalty for a breach of pensions legislation. For certain breaches (for example, failure to provide a Chair’s Statement or scheme return), a penalty is mandatory and the Regulator applies a higher scale of penalties for professional trustees. In other cases, the Regulator has discretion as to whether to impose a penalty, as well as the level of that penalty. The Regulator’s new monetary penalties policy clarifies that in these discretionary cases, professional trustee status will be a factor in its decision as to the level of penalty, but so will remuneration and relevant expertise. Remunerated or expert lay trustees who avoid the professional tag may still be fined at a higher level.
More significantly, the Regulator has begun to set out differences in its expectations of professional trustees, noting that it expects them to uphold higher standards than lay trustees. Its work on 21st Century Trusteeship, for example, has considered whether barriers to entry (such as professional qualifications) or requirements for continuous professional development should be applied to professional trustees. For the moment, no new standards have been proposed, but we expect to see further guidance from the Regulator on the roles, responsibilities and accountabilities of professional trustees. The DC Code and guidance on the Trustee Board also include references to the higher standards expected of professional trustees, particularly in relation to trustee knowledge and understanding. We may see further differentiation in future, so for individuals and boards, clarity about which side of the line they fall is very welcome.