What TKU requirements currently apply?

Broadly, under the Pensions Act 2004, trustees are required to understand the law relating to pensions and trusts as well as principles relating to investment and funding. Trustees must also be ‘conversant’ with their scheme documentation, having a ‘working knowledge’ of those documents such that they are able to use them effectively when carrying out their duties.

All new pension scheme trustees are required to complete the Pensions Regulator’s (TPR’s) Trustee Toolkit within six months of their appointment. TPR also encourages regular self-assessments of trustee boards’ combined TKU, to evaluate knowledge gaps and to put in place appropriate development plans. TPR advises trustees to review their individual TKU annually against updated guidance, with trustees of defined contribution (DC) schemes required to formally report on TKU as part of their annual chair’s statement.

And of course, as pension law changes, trustees must keep up. This year’s Pension Schemes Act has given trustees plenty to get their heads around. Amongst other things, this autumn’s changes to transfer requirements, an attempt to better protect members against scams, will need to be digested and enacted by trustees swiftly – particularly in light of a recent Ombudsman decision¹.

What are the upcoming changes to TKU?

(i) Climate risk

Very large schemes (those with net assets of £5bn plus) and authorised Master Trusts have recently seen changes from 1 October 2021 by virtue of the Occupational Pension Schemes (Climate Change Governance and Reporting) (Miscellaneous Provisions and Amendments) Regulations 2021.

These regulations require trustees to have an “appropriate degree of knowledge and understanding” of how to “identify, assess and manage risks” to schemes arising from the effects of, and opportunities relating to, climate change. These requirements will be phased in for smaller schemes. Schemes with £1bn or more of assets will be next in scope, from October 2022.

(ii) DC value for members

Towards the other end of the scale, DC and hybrid pension schemes with less than £100 million in total assets will be required to undertake a “value for members assessment” including commentary regarding the level of trustee knowledge, understanding and skills to operate the scheme effectively. This must be reported on in the annual chair’s statement.

This will apply to relevant schemes in their first scheme year ending after 31 December 2021.

(iii) Future of trusteeship and governance

Last year, TPR published its response on the” future of trusteeship and governance” where it confirmed that TKU is to be kept firmly on the radar. It plans to update its expectations for the “content and level” of TKU that trustees need to attain so these remain appropriate for safeguarding the interests of savers.

Once these new standards are in place, TPR intends to run a regulatory initiative to test levels of TKU and has threatened action where levels fall below its expectations. Trustees of all schemes will want to keep a watching brief for further details on the requirements and timings for TPR’s proposals.