An updated description of a professional trustee was issued by The Pensions Regulator (TPR) on Monday.
It paves the way to build standards and accreditation for professional trustees through the Professional Trustee Standards Working Group (PTSWG), TPR said.
However, it will also bring additional trustees who were not previously considered professional under greater scrutiny, making them liable to higher financial penalties for governance and administration failings.
TPR said: “We expect higher standards from professional trustees; this description specifies those we expect higher standards from. We want to see good quality professional trustees with expertise across trustee matters generally who will help improve the governance of pension schemes.
“As we expect higher standards across all scheme matters, we will normally apply higher penalties for those meeting the professional trustee description who fail to meet their duties.
The Pensions Regulator added: “Our underlying objecting in imposing a monetary penalty is to promote compliance with pensions legislation. Penalties punish wrongdoing, deter repetition and act as a warning to others.”
Levelling the standards
Pensions expert Alastair Meeks of law firm Pinsent Masons, explained that, for the regulator, “context is everything”.
“If a trustee is holding himself or herself out as an expert for one or more unrelated schemes, they would normally be considered to be a professional trustee, regardless of the charging arrangements.
“A trustee who is paid but who acts for only one scheme and is not seeking new appointments will normally not be regarded by the regulator as a professional trustee.”
Meeks said TPR’s approach is slightly different from courts which hold trustees to higher standards of competence if they are paid.
“However, the courts do not adjust the amount of damages payable for trustees once liability has been established by reference to their professional standing,” he said.
“The offences which the regulator is responsible for patrolling are mostly offences of strict liability. The regulator would probably prefer to hold professional trustees to a higher standard, but it can only differentiate in the punishment.
“The regulator’s thinking is muddled, but a rough justice is done,” he said.
Penalties
TPR’s penalty policy divides breaches into bands ranked from one to three, depending on the severity of the breach;
- Band one offences carry a maximum penalty of £1,000 ($1,300, €1,100) for individuals and £10,000 for corporate trustees;
- Band two maximum penalties of £2,500 and £25,000, respectively; and,
- Band three maximum penalties of £5,000 and £50,000, respectively.
The middle point of each band will usually be taken as the starting amount, with the final penalty adjusted to take account of any aggravating or mitigating factors.
Taken into account
A breach will be assigned to a band level based on its nature and impact, or potential impact. Factors that may be taken into account by the regulator include:
- The likelihood and extent of the impact of the breach on pension scheme members, including the number of members affected;
- The likelihood and extent of the impact of the breach on the employer covenant;
- The likelihood and extent to which the breach may lead to compensation being payable from the Pension Protection Fund; and,
- Any evidence of dishonestly, lack of integrity, fraud, deliberate concealment or intentional or reckless breach.
