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| | Pensions Matters June 2007
New Requirements for Member-Nominated Trustees and Directors
New legislation
The Pensions Act 2004 introduced new requirements relating to member-nominated trustees and directors (“MNTs” and “MNDs”), which came into force on 6 April 2006. The details of these requirements are set out in Regulations (The Occupational Pension Schemes (Member-Nominated Trustee and Directors) Regulations 2006 (SI 2006/714). The Pensions Regulator has also issued a Code of Practice (No.8), to assist trustees in putting into place arrangements that meet the new requirements.
Previous MNT requirements
The previous MNT/MND provisions were contained in the Pensions Act 1995. The key requirement was that occupational pension schemes (except for a few types of schemes that were exempt) had to have at least one-third MNTs on their trustee board, or at least one-third MNDs in the case of a sole corporate trustee. However, employers were allowed to “opt out” of these requirements and adopt their own trustee arrangements, provided the members’ approval to this was obtained in the prescribed manner. A significant number of employers chose to opt-out.
New requirements
The Pensions Act 2004 retains the key requirement that (except in the case of an exempted scheme) at least one-third of the trustees of an occupational pension scheme must be MNTs, or if the scheme has a sole corporate trustee, at least one-third of the trustee’s board of directors must be MNDs. The scheme’s trustees have to ensure that arrangements are put in place that provide for this, and that these arrangements are implemented. The penalties for non-compliance with these requirements include fines of up to £5,000 for an individual trustee, and £50,000 for a corporate trustee.
Another important change is that, under the new provisions, the employer’s ability to opt-out of the MNT/MND requirements has been abolished.
MNT/MND arrangements
The trustees have to decide on the arrangements for the nomination and selection of MNTs (or MNDs) for their scheme. The new requirements are less prescriptive than the previous ones, and are intended to provide greater flexibility to enable the trustees to design arrangements which suit their particular scheme. The Pensions Act 2004 does, however, set out certain minimum requirements with regard to what such arrangements must contain; for example:
- the nomination process must involve the active and pensioner members (or trade unions, staff committees or pensioners organisations which adequately represent these members);
- the process for selecting MNTs after nominations have been received must involve at least some of the members of the scheme; and MNTs/MNDs may not be removed from office except by a vote of the members or the agreement of all the other trustees/directors.
The Pension Regulator’s Code of Practice also states that the Regulator expects trustees to apply the principles of “proportionality, fairness and transparency” when deciding on their arrangements. (These principles are explained in the Code of Practice.)
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