General comments
1. Why are you changing the Scheme’s governance structure now?
After the Scheme closed to new benefit accrual in 2019, everyone involved with the Scheme decided it was a good opportunity to review how the Scheme operated to make sure the structure was appropriate, meets modern business and governance practices and is fit for the future.
This review was also supported by the Pensions Regulator.
2. Can we see Pi’s list of recommendations?
Yes, here’s a link to Pi’s recommendations.
3. Why won’t all of Pi Consulting’s proposals be implemented?
There were some areas where the Trustee, employer trade associations (APHC and SNIPEF) and Unite the Union (the Constituent Bodies) did not believe Pi Consulting’s recommendations should be accepted. For example, it was hoped that the Director roles would be filled by better candidates by paying a market rate rather than just expenses.
4. What is the implementation timeline?
The Trustee and the Constituent Bodies have reviewed all the feedback received and decided to proceed with the original proposals. We need to agree new documentation to set out how the Trustee Board, Employer Company and Administration Company will work, and we need to recruit and appoint Directors to fill the new posts. We hope that the new structure will be up and running later this year.
5. Who will pay for the extra cost of the new structure?
The proposals assume that the Scheme will meet the extra cost. We believe the new governance structure will allow better decisions to be made in a timelier manner, resulting in better member outcomes, and therefore the extra cost is justified. There will be strict guidelines for what is acceptable expenditure, and budgets will be set and closely monitored to control cost.
6. Will the new governance structure be more expensive?
The extra cost of running the Employer Company will be a small proportion of the Scheme’s running costs and it will be closely monitored and controlled. We hope employers will see the value in having a group to represent all their interests and take professional advice on their behalf. We also believe that a more streamlined decision-making process will result in better outcomes for members and employers.
7. Do the changes increase the likelihood that employers will need to pay deficit reduction contributions in future?
No. The Scheme is currently in good financial shape – it is fully funded using conservative assumptions and it has a low-risk investment strategy. We believe the changes will mean better decisions will be made more quickly, which should reduce the likelihood that employers need to make deficit funding contributions in future, although there is no guarantee that employer deficit contributions would never be required.
8. Why are the terms of office four years? Isn’t that too long?
We believe four-year terms of office are appropriate because the main tasks of running a pension scheme are repeated every three to four years and it takes time for a new Director to learn about running a pension scheme. A Director can resign at any time if their employment or personal circumstances change.
9. Will the new Directors receive training?
Yes. We plan to run training sessions for all the new Directors when they join to help them understand how the Scheme works and their role and responsibilities. Regular training will also be given.
10. What does the Pensions Regulator think about the governance review?
The Pensions Regulator supports the governance review. The Trustee has kept the Pensions Regulator informed of progress throughout the process.
11. Would it be better to wait for the outcome of the Scottish court decision?
The court issued its opinion on 2 March 2022 and granted the key orders sought by the Trustee. There is nothing in the court’s opinion that changes the governance proposals.
12. Has the Scheme been mismanaged because many pensioners like myself have not seen any increase in our payments?
No, the Scheme has not been mismanaged. Every year, the Trustee increases member pensions in accordance with the Scheme’s rules. Most Scheme benefits earned before April 1997 do not increase in payment (the exception is Guaranteed Minimum Pensions earned between April 1988 and April 1997). In the past, the Scheme paid discretionary increases on pensions earned before April 1997, but it has not been considered prudent to do so in recent years given the Scheme’s current funding objectives.
13. Why is it appropriate to remove APHC and SNIPEF, who do not represent all the participating employers, but not Unite, who does not represent all the members?
Whilst Unite the Union and the employer trade associations, APHC and SNIPEF, were collectively responsible for setting up the Scheme, the employer trade associations wished to include broader participation of non-member employers as recommended by Pi Consulting. Unite wants to continue to collectively represent and support Scheme members because a majority of Scheme members worked under the terms of the two JIB national collective agreements negotiated by Unite.
Trustee Board
1. Why were Pi’s material changes to the Trustee Board rejected, for example, on director remuneration, replacing all existing Directors to have a ‘fresh start’, and appointing a member- nominated Director?
Not all of Pi’s recommendations were felt appropriate to implement. For example:
- By paying a market rate rather than just expenses, it was hoped there would be a larger pool of people with relevant experience and/or a willingness to learn who would choose to become Directors of the Employer and Trustee Companies.
- Some of the Trustee Directors joined the Board in recent years and weren’t Directors when the historical section 75 employer debt issues arose and some longer-serving Directors have retired or said they plan to step down when the new structure is implemented. It was therefore not considered necessary to replace all the Directors. The maximum time that a Trustee Director can serve on the Board in future is limited to 12 years.
2. Why won’t there be a member-nominated Director like Pi recommended? Is it because most Scheme members are members of Unite?
The Trustee Board recognises the benefits a member-nominated Director would bring to the Scheme. However, given the practical difficulties of selecting and training a member- nominated Director, it was felt that a better solution was for Unite to nominate two Trustee Directors. Not all the Scheme’s members are members of Unite, but Unite (and its predecessors) has supported the Scheme since its inception in the 1970s and are signatories to the National Working Rules for the plumbing and mechanical services industry.
3. How will Directors be appointed to the Trustee Board?
Three independent professional Trustee Directors will be chosen by the Implementation Group initially and by the Trustee Board in future years. Two Directors will be selected by the Employer Company and Unite the Union will select two Trustee Directors. Each year, the Trustee Board will elect one of the independent Trustee Directors to be Chair.
Employer Company
1. How will the Employer Company Directors be chosen? If by vote, will votes be weighted by liability? How will the Employer Company Chair be selected? What knowledge and experience is required?
The Implementation Group will work with Pi Consulting to agree a job description for the Employer Company Chair role, to include selection criteria, background, experience, skills and expected time requirement. The role will be advertised through a wide range of suitable channels and Pi will help with the recruitment, interview and selection process. The process will begin in April 2022 and will be undertaken in a robust and transparent manner, with independent oversight by the Implementation Group. It is hoped that the new Chair will be appointed in the Summer.
The new Employer Company Chair and Directors appointed by SNIPEF and APHC will then jointly agree the employer Director constituencies, criteria and election or selection/interview process for the remaining Employer Company Directors, with Pi’s support. Full details of the appointment process for the remaining Directors will follow in due course.
It is hoped that the Directors will be chosen over the summer so the new Employer Company Board can meet in autumn 2022. The Employer Company will then appoint two employer-nominated Directors to the Trustee Board. In future years, the Employer Company Board will be responsible for appointing its Directors.
If you have any comments on the preferred skills or experience of the independent Chair, please email: aburden@pipg.co.uk by 18 April 2022.
2. How will the interests of all employers be safeguarded?
When making a decision, Employer Company Directors must consider the different aspects and interests of all employers, but they do not have to act in the best interests of every single employer because what might suit one employer might not suit another. Employer Company Directors must not represent their own business and commercial interests. Minutes of Employer Company meetings will be available for all employers to see. The Employer Company will consult employers before making a decision on significant matters.
3. How will conflicts between employers be managed at the Employer Company?
See the answer to question 2 on page 6.
A conflict of interest policy and register will be maintained for the Employer Company.
4. How will the Employer Company’s spending be managed?
The proposal is that the Employer Company will set a budget for the year ahead and share it with the Trustee Company for approval. There will be clear terms on what is and what is not appropriate expenditure to be met from Scheme funds and a mechanism to approve any mid-year budget changes.
5. Will Employer Company Directors be paid in the same way as the Trustee Company Directors?
The proposal is that Employer Company Directors and Trustee Company Directors will be paid a market rate for their attendance at meetings and dealing with matters that arise in between.
6. What happens if an employer refuses to be represented by the Employer Company?
The Scheme’s governing documents will specify that the Trustee is required to agree funding matters with the Employer Company. Consultations with employers will continue to be carried out directly with employers, either by the Trustee or via the Employer Company. Employers will continue to be able to contact the Trustee directly should they wish but no separate process will be operated.
7. To allow the Employer Company to properly represent its stakeholders, will the names of participating employers be available to the Employer Company Directors?
This is for the Employer Company and participating employers to decide. At present, to ensure there is no bias in decision making, we keep employer names confidential by using employer codes. Information about an employer’s size, location, sector, financial position and legal structure is provided where it is relevant to the decision.
8. How many employers are members of APHC or SNIPEF?
We do not have the exact numbers because data protection rules mean we cannot check the Scheme’s database against the employer trade associations databases.
Administration Company
1. When was the nomination made to make the Administration Company the ‘Lead Employer’?
The Pensions Act 1995 introduced a requirement for the Trustee to consult and agree certain funding and investment issues with the employers but allowed a nominated employer to act as a representative for the other employers. Since then, the Administration Company has acted as the ‘Lead Employer’ for funding and investment matters for this purpose because it would have been impractical for the Trustee to consult or reach agreement with all the participating employers individually.
2. What steps are you taking to review the potential conflict impact of the Administration Company being the ‘Lead Employer’ on past decision making?
To reduce the risk of a conflict arising, decisions about funding and investment matters were taken by the Administration Company after consulting the Constituent Bodies and in recent years, after writing to all the participating employers to invite feedback. The Scheme is well-funded and has a sensible long-term investment strategy, given its risk profile, and hence there is no intention to revisit past decision making.
3. Is the Administration Company taking a backward step to attempt to remove itself from past failures and potential liabilities?
All parties agree with Pi’s recommendation that the Administration Company should focus on administering the Scheme and that the new Employer Company should take on the ‘Lead Employer’ duties and responsibilities.
