The Pensions Act 2004 introduced a requirement on
pension scheme Trustees to have appropriate knowledge and
understanding of the law relating to pensions and trust law, the
principles relating to the funding of occupational pension schemes
and the investment of the assets of such schemes.
Individual Trustees must also be conversant with
their own scheme rules and other related documents.
Conversant is taken to mean having a working knowledge of those
documents so the Trustees are able to use them effectively when
they are required to do so in the course of their Trustee
duties.
This new requirement applies to all Trustees,
corporate or individual, of all occupational schemes (including
stakeholders schemes set up under trust) regardless of scheme
size. The only exemptions are schemes with fewer than 12
members where, either:
- all members are Trustees and are equal decision
makers; or
- all trustees are directors of a company which is
sole Trustee and all members are equal decision makers.
Trustees in place at 6 April 2006 have until 6
October 2006 to comply with this new requirement. Any new
Trustees, appointed after 6 April 2006, will have six months from
the appointment date to comply.
Trustees who claim to be experts will be expected
to be appropriately qualified.
Keeping up to date and filling any gaps in knowledge should be
ongoing and any learning processes should be regularly updated. The
Regulator will periodically quiz schemes on their learning
processes.
Q & A's
Trustees will need to have an appropriate knowledge and
understanding of pension and trust law and be familiar and
conversant with:
- their own scheme documentation;
- any documents relating to the current administration of the
scheme.
The degree of knowledge required, is
that needed for the Trustee to be able to perform their functions
as a trustee.
Different trustees may perform different roles. How much TKU
they will need will depend on the nature of their scheme and their
own role within it. For example, a trustee of a fully insured
scheme may not be expected to have the same investment TKU as a
trustee of a scheme that undertakes direct investment.
The Regulator will routinely question Trustees about their
learning activities and on what steps they take to maintain their
Knowledge and Understanding. The answers provided will form part of
the Regulator's risk assessment of the pension scheme.
If a scheme is considered 'riskier' than the norm, it is likely
that the Regulator will check the competency of that scheme's
trustees on a more regular basis.
The Regulator will expect that a scheme review the Knowledge and
Understanding of their trustees on an annual basis. Trustees
therefore need to be ready to display their TKU achievements, e.g.
examination results, courses attended etc., in case the Regulator
asks.
It will not be mandatory for a pension scheme Trustee to have a
formal qualification.
If the Regulator reached a decision that a Trustee was not up to
performing the role expected of them, they will have powers to have
them removed, and to bar them from taking up a Trustee role in the
future.
The items Trustees will need to cover is quite extensive, with
the main areas as follows: -
- Trust Law: Trustee duties, powers and obligations.
- Pension Law: The key provisions of legislation that affect
pension scheme.
- Investments: The different asset types available for investment
and their characteristics.
- Funding: For defined benefit schemes (DB) this covers, funding
principles, financial strength of the sponsoring employer and the
value of the scheme's liabilities. For defined contribution schemes
(DC) this relates to funding principles and the risks borne by
members.
- Contributions: This concerns DB schemes, in particular the
assumptions used in setting contribution levels.
- Strategic Asset Allocation: This again concerns DB schemes and
refers to the suitability of different asset types in relation to
the liabilities of a pension scheme.
- Investment Choices: The area covered here centres on the
principles relating to investment choice for DC schemes, including
AVCs.
- Fund Management: How performance can be measured, including the
principles of fund management.
- Document Types: The legislation requires trustees to be
conversant with
