The Pensions Regulator (TPR) has issued a revised description of who it classes as a professional trustee. The new description focuses on whether the trustee is acting in the course of the business of being a trustee. In addition, TPR has provided examples of when it might consider someone to be a professional trustee.
TPR has also published its monetary penalties policy. This is no accidental timing - professional trustees are held to higher standards and will usually be given higher penalties for breach.
So, do you know what sort of trustee you are?
1. TPR has issued a revised version of its professional trustee description policy
The Pensions Regulator issued its revised Professional trustee description policy on 10 August 2017. TPR expects the person appointing the trustee to be aware of and understand its new policy. The new policy forms part of TPR's drive to improve standards of trusteeship and governance. TPR believes these are key factors in achieving good member outcomes.
2. Professional trustees are those acting as a trustee 'in the course of the business of being a trustee'
The Professional trustee description policy describes the trustees that TPR would consider to be professional trustees. The test is whether someone 'acts as a trustee of the scheme in the course of business of being a trustee'.
3. Remuneration, expertise and independence are relevant factors
The Professional trustee description policy makes it clear that TPR will take on board a range of factors if it needs to determine who is a professional trustee. Neither remuneration nor independence are, by themselves, sufficient to determine whether an individual is a professional trustee. Nor is special expertise - but if an individual represents himself to unrelated schemes as having expertise in trustee matters generally, he will usually be a professional trustee. The policy provides some useful examples of individuals TPR would, and would not, classify as a professional trustee.
4. TPR is likely to apply higher fines to professional trustee
Higher monetary penalties are likely to be applied by TPR for any breaches of trustee duties. That is in addition to the reputational consequences of any publicised breaches.
5. TPR has also issued a policy on how it will use its powers to fine
TPR's Monetary penalties policy sets out how TPR will use its powers to impose monetary penalties under pensions legislation. The policy sets out the principles that guide TPR in deciding whether to impose a discretionary fine, determining how much a discretionary fine should be and how it will apply mandatory fines.
The Pensions Regulator consulted the pensions industry in March earlier this year to seek views on:
- who should be classified as a professional trustee; and
- what monetary penalties should be imposed for breach of trustee duties.
TPR has now issued revised versions of its:
- Professional trustee description policy (10 August 2017); and
- Monetary penalties policy (10 August 2017).
Why has TPR issued revised guidance on these issues?
TPR wants to improve governance and administration standards to better protect member benefits. In July 2016, TPR issued a discussion paper called 21st Century Trusteeship and Governance. As part of this, TPR has focused on the role that professional trustees can play in the running of pension schemes.
TPR also has the power to impose fines in a range of circumstances. Examples include a failure to submit scheme returns on time under the Pensions Act 2004 or for failing to comply with the requirements relevant to the Chair's statement.
TPR now seems to be making greater use of its powers to impose sanctions for scheme governance and administration failings. Professional trustees are held to higher standards than non-professional trustees, and therefore face potentially higher penalties if breaches occur.
As a result of these developments, TPR was asked to provide clear guidance on:
- what makes a trustee a professional trustee; and
- what sanctions (including fines) trustees might face if they fall short of those standards.
What has TPR said in its policies on professional trustees and monetary penalties?
Professional trustee description policy
What is TPR's definition of a professional trustee?
TPR considers a professional trustee to be someone who acts as a trustee 'in the course of the business of being a trustee.'
This seems a simple definition, but TPR acknowledges that it could be more difficult in practice. The policy sets out the relevance of various factors TPR will consider when deciding, with particular focus on remuneration, independence, and expertise. All these factors are indicative that an individual may be in business as a trustee, but none of them, in isolation, are determinative. Conversely, the absence of any of them does not mean that an individual is not in business as a trustee.
What if a trustee is paid?
If a trustee is remunerated, this will not automatically mean that the trustee is classified as a professional trustee.
If a trustee is remunerated but:
- is or has been:
- a member of the scheme (or a related scheme); or
- employed by a participating or group employer ; and
- they do not act or offer to act as a trustee in relation to any unrelated scheme
they will not usually be classified as a professional trustee.
What if a trustee has particular expertise or is independent?
Independence alone is not determinative of professional status. Neither is special expertise.
However, where a trustee represent themselves to trustees or sponsors of one or more schemes as having expertise in trustee matters generally (rather than in just certain areas), TPR would normally consider them to be acting in the course of the business of being a trustee. Such a trustee would therefore be classified as a professional trustee.
If a trustee is appointed by a scheme as a professional trustee, TPR will view them as a professional trustee for all of the trustee appointments they hold, and they must notify their other schemes accordingly.
The description policy illustrates TPR's view with practical examples, such as:
- independent trustees and pro bono appointments;
- long serving remunerated trustees;
- trustees with particular expertise;
- former executives appointed as independent trustees;
- portfolio career trustees; and
- professional trustees who take on poorly performing schemes.
Monetary penalties policy
TPR has also issued its Monetary penalties policy (August 2017) will use its powers to impose monetary penalties under pensions legislation. The underlying objective of its policy is to promote compliance with pensions legislation. In addition, TPR states that penalties are intended to:
- punish wrongdoing;
- deter repetition; and
- act as a warning to others.
The policy applies to any trustee, manager, employer, adviser or other person who may be issued with a monetary penalty for contravening pensions legislation.
How will TPR decide whether to impose a discretionary penalty?
In deciding whether or not to impose a discretionary penalty, TPR will:
- apply its risk based approach;
- consider the underlying objective to promote compliance with pensions legislation; and
- take into account the relevant facts (such as the trustees notifying TPR of any breach and being co-operative in investigations, as well as the nature and potential impact of any breach).
What are TPR's principles in determining the amount of a discretionary monetary penalty?
TPR has three principles to guide it in setting the level of a discretionary monetary penalty:
- Proportionate: The penalty should be proportionate to both the nature of the breach and the harm caused.
- Changing behaviour: The amount of the penalty should be set at a level that aims to change the behaviour of theperson in breach.
- Deter repetition: The penalty should aim to deter repetition of the breach in the wider pensions industry.
In addition, TPR will take into account:
- mitigating factors; and
- aggravating factors.
Examples of mitigating and aggravating factors are provided on page 10 of the Monetary penalties policy. They include taking into account the track record of the person in breach, the conduct of the person once issues have been identified (e.g. did they notify as soon as possible or try to conceal the breach) and whether the person receives remuneration for their role.
How does TPR deal with mandatory penalties?
Some penalties are mandatory (e.g. for failure to prepare a Chair's statement). TPR has set out various band levels to help determine what penalties will be applied, up to the statutory penalty limits (which are generally £5,000 for individuals and £50,000 for corporate bodies). In addition, the policy sets out some examples to demonstrate how TPR will apply the policy in practice.
What does the policy say about joint and several liability?
Most discretionary penalties can be imposed on each person who has failed to comply (rather than on the trustee board as a whole) but some must be imposed on a joint and several liability basis.
Where penalties are due on a joint and several basis, TPR expects:
- the parties to agree among themselves how the penalty will be apportioned; and
- for the penalty to be paid in a single lump sum.
Next steps and action
Trustees need to be aware of the policies and are expected to read them, as do those who appoint trustees.
Given TPR's willingness publicly to name schemes failing below expected standards for failing to complete scheme returns or file annual chair's statements on time for example (see TPR names pension schemes whose trustees failed to complete their basic duties), these two policies are essential summer reading for anyone working in the pensions industry.