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Comments from ACCA
September 2005

ACCA is pleased to comment on the draft code of practice on the above. ACCA’s comments have been put together by our Pensions Committee, which is made up of senior accountants with long experience of working with pension schemes from a number of different perspectives.

We agree that a code of practice on this matter is likely to be useful to trustees and members in interpreting the member-nominated trustee provisions of pensions legislation.

In general, we consider that the draft code covers the ground that we would expect to see covered and provides advice which will be seen as useful.

The main respect in which we found the code lacking was in its failure to alert potential trustees and directors to what is involved in acting in such capacities. We would agree that employers should not do anything to discourage individuals from putting themselves forward. Neither should they be expected to give extensive details of the legal duties and liabilities of trustees and directors. But we suggest that to invite members to put themselves forward without any reference to what is involved in these positions risks giving a false impression to potential candidates. In particular we suggest that, without additional information, candidates could be misled into thinking that the appointment of member trustees was solely about filling available places on the board. We therefore recommend that the draft code be amended to require boards and employers, when communicating with scheme members on this matter, to encourage potential candidates to consider whether they are prepared to take on the responsibilities and liabilities of the posts. At the least, potential candidates should be referred to the code of practice on ‘Trustees’ Knowledge and Understanding’.

Our comments on specific consultation questions are set out below.

Q1 Do you agree that 6 months is a reasonable time for trustees of schemes to decide upon the arrangements they wish to put in place?

We consider that 6 months is too short for most schemes. 9 months would be more appropriate.

Q3 Do you agree with an approach based on the principles of fairness, transparency and proportionality?

Yes. But we suspect that the MNT rules themselves will amount to an imposition on smaller schemes. We believe it would be consistent with the principle of proportionality to restrict the operation of these rules to schemes with, say, 100 members, with compliance being made voluntary for smaller schemes.

Q4 Do you agree with the framework for the nomination process?

We suggest that the text needs to make clear to trustees at the outset that there is no single method of carrying out the nomination process, and that it is up to the trustees of each scheme to decide how they carry it out, in the light of the guidance contained in the code.

In paragraph 23, the text refers to the trustees ‘deciding’ whether an organisation represents the members. We suggest a better term would be ‘considering’.

Q5 Do you agree that 12 months is a reasonable interval for re-running the nomination process if insufficient nominations are received?

12 months may be reasonable in more substantial schemes but, where small schemes are concerned, we think it would be excessive. We suggest the timescale for re-running the process should be kept flexible, with an interval of, say, between 1-3 years, or after there has been staff turnover above a set figure since the last exercise.

We would additionally suggest that, where insufficient nominations are received, the fact should be reported to the Regulator.

Q6 Do you agree with the principle-based approach to selection?

We agree with a principles-based approach.

Q7 Do you agree with this framework for the selection process?

On a drafting point, paragraph 38 states that the selection process for trustees must involve some or all of the members of the scheme. Read on its own, this passage appears to give complete discretion to the employer to decide which of the members should be involved in the process. We assume that the discretion is only intended to go as far as to enable the employer to decide whether to include deferred members in the process, in addition to active members (as stated in paragraph 22). We consider that the passage should be re-drafted so as to make this clear. But in any case, we query why deferred members should not be involved in the process of ensuring that their interests are directly represented on the board.

Q8 Do you think that 6 months is a reasonable period for trustees of most schemes to implement their arrangements for securing MNTs?

6 months may be sufficient for many schemes but we suggest that, if the code is to apply to all schemes at least 9 months should be afforded.

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