As the regulatory environment continues to change and more complex pensions-related issues arise, the knowledge and understanding obligations on pension scheme trustees continue to grow. Trustees can struggle to keep up with the ever-changing pensions environment and it is therefore important that an appropriate training checklist and schedule is put in place to ensure that trustees are able to effectively fulfil their roles and statutory duties.
The Pensions Act 2004 requires that trustees:
- be conversant with key scheme documents (such as the trust deed and rules, statement of investment principles and statement of funding principles); and
- have appropriate knowledge and understanding of the law relating to pensions and trusts, the principles relating to funding of occupational pension schemes (for defined benefit schemes) and the investment of assets of the scheme.
The Pensions Regulator’s Code of Practice “Trustee Knowledge and Understanding (TKU)” expands on the level of knowledge and understanding which is required of trustees and the accompanying scope guidance documents for each of DB, DC and small insured DC schemes set out in more detail the areas in which trustees of each type of scheme need to have knowledge. The Pensions Regulator expects trustees to be able to demonstrate their knowledge, keep a record of their training and is monitoring trustee boards to see what level of formal training trustees are undertaking.
We would recommend that trustees work with their advisers to establish a checklist of the areas which each trustee needs to understand in order to properly fulfil their role. The level of knowledge and understanding required will depend on a number of factors including the size and structure of the scheme, the powers held by the trustees under the scheme rules and the form of employer covenant, but would likely include as a minimum:
- Law relating to pensions and trusts: anti-discrimination laws, tax treatment of pension benefits, fiduciary duties such as the duty to act in members’ best interests, powers of the Pensions Regulator
- Principles relating to funding (DB schemes): employer and member contribution rules, principles behind actuarial valuations, reliance on employer covenant, different funding measures
- Investment of assets: balance between investment risk and reward, importance of diversification, how to measure investment performance, different asset classes
It is important that trustee boards allocate sufficient time to training and any gaps in knowledge could be established by undertaking annual assessments based on the scheme specific checklist. It is worth noting that trustees have a right to time off for the purposes of performing their duties as trustees and this includes time for relevant training.
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