15. Trustees have fiduciary duties to protect the interests of pension scheme members and beneficiaries. The trustee role is closely aligned with TPR's objectives.[43] TPR does not have the capacity to intervene in every scheme and therefore seeks to place reliance on trustees as well as other pension scheme professionals, in meeting its statutory objectives.[44] To be successful, TPR needs to ensure that both trustees and pension scheme professionals govern schemes well.

TPR's activities to improve governance

16. Shortly after being established TPR identified seven priority areas for good pension scheme governance which need to be improved (Figure 3).[45] It inherited low standards of governance and, in particular, low levels of trustee knowledge and understanding.[46] For example, 41% of trustees said they had had no training and a further 12% that the training was only of an introductory nature. Furthermore, familiarity with TPR's new guidance and codes of practice was initially relatively low. For example, only 25% of trustees said they were 'very familiar' with TPR's code of practice on reporting breaches of the law. TPR therefore faced a challenge in raising standards of governance.[47]

Figure 3: TPR's seven priority areas for governance

17. To raise standards TPR needs to educate those who govern pension schemes (such as pensions professionals and lay trustees) as to what constitutes good governance and, in particular, influence the trustees who have a duty to report to TPR if they are aware of wrongdoing or a serious risks to members' benefits.[48] Many trustees are lay volunteers and because they represent members' interests and negotiated with the sponsoring employer, TPR has targeted them as being key to raising governance standards.[49]

18. TPR has issued ten codes of practice covering issues such as reporting breaches of the law and funding final salary schemes. It has also issued guidance in 15 areas ranging from the roles of trustees to technical issues such as scheme abandonment and internal controls.[50] TPR's surveys show that 80% of those who run pension schemes consider that is has been effective with issuing codes of practice, and 73% that it has done a good job with issuing guidance. 63% consider that it has been effective in improving governance standards (Figure 4).

Figure 4: Stakeholder perceptions of TPR's performance against its key challenges

Key: Percentage of stakeholders who thought the regulator was 'effective' in each category; the balance of stakeholders included both those that replied "don't know" and those who disagreed.

Source: C&AG's Report, Figure 6, Q73

19. TPR has created a 'trustee tool kit' which covers governance and technical issues. The tool kit is a web-based learning tool covering the main areas of trustee knowledge and understanding. It is a free resource available for anyone to use. Some 20,000 trustees have registered to use the toolkit but there is no requirement to finish it, and those who have registered represent only 15% of the total of 130,000 trustees.[51] Furthermore, only 3,300 trustees from money purchase schemes have registered, which is where much of the growth in the number of schemes is occurring. TPR's research has found that governance standards are generally lower in smaller schemes, and from March 2008 TPR plans to use its new database to market the tool kit to these smaller schemes in a much more structured way.[52]

Current standards of governance

20. TPR carries out an annual survey to evaluate standards of governance, and has completed two so far, in 2006 and 2007.[53] The surveys are designed to gain a broad understanding of current practice among trust-based private sector pension schemes.[54] They also give TPR an indication of whether governance standards are improving and support reporting against one of TPR's three key performance indicators. This indicator measures whether there is 'year-on-year improvement in the extent to which trustees demonstrate knowledge and understanding of the governance requirements for their schemes, as evidenced by surveys of knowledge and understanding and key aspects of governance'.[55]

21. TPR's survey results show that three of the seven areas that it has concentrated on have shown improvement. These are trustee knowledge and understanding, management of conflicts of interest, and monitoring the pension promise.[56] However, there are other areas where governance standards need improving. For example, the proportion of schemes offering no formal structured training is 34%.[57] Fewer than one third of schemes have a conflict of interests register, and only 35% have a policy on managing conflict of interests. 40% of schemes do not have a process to identify risk.[58]

44   Qq 47, 48, 59, 60, 96 Back

45   C&AG's Report, appendix 5, Section 1, second para Back

46   Qq 6, 83; C&AG's Report, para 4.13 Back

47   C&AG's Report, para 4.13 Back

48   Qq 50, 90, 91 Back

49   C&AG's Report, para 4.12 Back

50   C&AG's Report, para 4.15 Back

51   Qq 34, 35, 37-39; C&AG's Report, para 4.15 Back

52   Q 40 Back

53   C&AG's Report, appendix 5 Back

54   Q 43 Back

55   C&AG's Report, Figure 5 Back

56   C&AG's Report, appendix 5 Back

57   Q 83 Back

58   Qq 86-88 Back