The Pensions Act 2004 has replaced the Pensions Act 1995 requirements in relation to member-nominated trustees and directors (MNTs, MNDs).
For schemes already in existence at 6th April 2006, the route to compliance with the new regime will depend upon how the scheme implemented and complied with the Pensions Act 1995 requirements (which came into force in 1997). As discussed below, a scheme may have selected one third MNTs or MNDs under the old regime or instead, like many schemes, have chosen to “opt-out” of the one-third requirement by obtaining membership approval of alternative trustee composition arrangements.
Under the Pensions Act 2004 the concept of an “opt-out” disappears and the requirement to have in place one third MNTs/MNDs becomes absolute.
When will we have to implement the new requirements?
We have one third MNTs/MNDs under the terms of the Pensions Act 1995 Under the transitional arrangements, the existing MNTs/MNDs will continue to count as MNTs/MNDs for the purposes of the new regime until their existing term of office expires. However, trustees still need to ensure that they have complied with the new Pensions Act 2004 requirements, although they may find that they can retain some of their existing nomination and selection procedures when putting in place their new arrangements.
We have an opt-out in place
Under the transitional arrangement contained in the legislation, any opt-out will remain in place until the earlier of:
1. the date the opt-out is ended (if action has been taken to bring this about);
2. the date the opt-out expires; or
3. 31st October 2007.
In general terms, if no action is taken to end the opt-out trustees should therefore continue to comply with their opt-out procedure until 31st October or the date that the opt-out expires (if earlier). The new requirements will then apply and steps should be taken to comply with them.
Our scheme was established after 6th April 2006
The new requirements will apply from the date the scheme was established and trustees should add the new requirements to their list of setup actions.
What are the new requirements?
Main compulsory elements
- At least one-third of the trustees/directors must be member-nominated
- All active members and all pensioners must be involved in nominating candidates to be an MNT/MND
- At least some or all members must be involved in the selection process
- If any/all vacancies are not filled, the process must be re-run at reasonable intervals. tPR believes that three years would be a reasonable interval.
- The removal of an MNT/MND requires the agreement of all other trustees
- The appointment of the MNTs/MNDs selected will need to be confirmed in the manner set out in the scheme’s governing documentation (e.g. appointed by deed)
The new regime is otherwise relatively flexible and, according to tPR, is based on the 3 broad principles of fairness, proportionality and transparency. In tPR’s guidance, as in the legislation, the process is broken down into two stages: nomination, which is followed by selection.
With the above broad principles in mind, trustees will therefore need to make decisions, for example, as to:
- which members, or class of members, can be nominated as MNTs/MNDs and any eligibility crtieria
- whether organisations (e.g. trade unions) or ‘constituencies’ of types of member should be used
- whether deferred members will also be involved in the process
- if there are more nominees than places, whether there will be a ballot
- whether the trustees would prefer to use a selection panel
- if a selection panel is used, who will make up that selection panel.
Communication to members
The Trustees will need to communicate the arrangements for nomination and selection to members, as well as the outcome. According tPR these communications should include:
- the number of MNTs the scheme should have;
- the number of MNTs in place;
- the number of MNT vacancies;
- a short explanation of the role of a trustee and any available training;
- any eligibility criteria;
- what will happen if the number of nominations is less than or equal to the number of vacancies;
- details of the selection process to be used if there are more nominations than vacancies, or if the trustees have decided to hold one anyway;
- how to nominate someone for selection as an MNT;
- any time limits that apply; and
- a contact for queries.
- what those involved in the selection process need to do;
- the outcome of the nomination process;
- the method of selection.
The outcomes of the nomination and selection processes, and the method of selection, should be communicated to all of the members involved in both processes.
tPR has expressed the view that trustees should start to give consideration to these issues in advance of the legal requirement to put new arrangements in place. In terms of when the new nomination and selection arrangements need to be in place, the legislation provides for a ‘reasonable period’ which tPR has interpreted, in broad terms, to mean six months. All these issues and concepts are elaborated upon in tPR’s “Regulatory Code of Practice No. 8: Member-nominated trustees and directors – putting in place and implementing arrangements” which is available on tPR’s website at http://www.tpr.gov.uk/pdf/codeMntMndFinal.pdf.
Further guidance for trustees can be also found on tPR’s website at: http://www.tpr.gov.uk/trustees/memberNominated/index.aspx.