UK: Appointment Of A Member Nominated Trustee (MNT) Or Member Nominated Director (MND)

Last Updated: 8 April 2008
Article by Kate Goldfarb

Since the introduction of the 2006 Pension Act many schemes are having to turn to external professionals to comply with the new regulations

With the increased requirement in the levels of probity necessary, law firms, accountants, consultants and pension scheme administrators are being tied up with the complexities of managing scheme performance. This can mean that less regular legislative requirements may not be given the due diligence they require.

One such area where new legislative requirements can add an additional strain on existing management channels is the process of selecting Member Nominated Trustees and Member Nominated Directors. With the removal of optional opt-outs for MNTs and MNDs, many schemes now have requirements to implement entirely new structures for the first time.

What has changed?

The Pensions Regulator demands that an MNT be nominated by the members (and sometimes elected) to be a trustee of the scheme - as a result of a process which must involve at least:

(a) all the active members of the scheme or an organisation that adequately represents them;

(b) all the pensioner members of the scheme or an organisation that adequately represents them;

and

(c) is selected by some or all of the members of the scheme."

(www.thepensionsregulator.gov.uk)

(Here we should note that MNDs occupy a similar position to MNTs.)

The changes in the legislation that took effect in October 2007, means that the opt out option previously available for employers that enabled them to set up alternative arrangements was withdrawn. The MNT arrangements set up must now be reviewed by the trustees every three to five years. As from 31 October 2007, at least one third of trustees have to be member nominated for all UK occupational pension schemes and the Government has indicated that this might be increased to 50%.

What does this mean in practice?

This means that pension schemes must follow a more prescribed route in appointing MNTs and MNDs.

The appointment process involves a two-stage process; nomination and selection.

Nomination process:

This should be communicated to (at least all) active and pensioner members detailing the arrangements of the nomination process; roles and responsibilities along with any relevant information (such as eligibility criteria). If the number of nominees is less or matches the number of vacancies, those candidates tend to be declared elected unopposed (subject to eligibility).

Once the nomination stage has been completed – the selection stage comes into effect. Here the legislation provides the opportunity for best practice to be decided by the pension scheme itself.

Selection Stage:

The legislation does not prescribe a single selection method that must be used. Instead it outlines in a code of practice the general principles that must be met. These are proportionality, fairness, and transparency. The code then goes on to suggests a number of selection methods that meet these principles - and, not surprisingly, top of the list is selection by ballot.

(See: www.thepensionsregulator.gov.uk/codesOfPractice/mnt/mnt-09.aspx#methods)

The main advantage of selecting by ballot is that by letting the members elect their own representative(s) in a free and fair election, the scheme's management should be protected from any possible charge of unfairness.

A ballot should also be an exemplary process in terms of proportionality and transparency - but ensuring this can be a full time job – one which many pension fund managers or administrators simply don't have time to do. Therefore the ballot becomes little more than an after thought or a hurried un-coordinated process. This can undermine the very fundamentals of the pension scheme. Conversely, best practice, effectiveness and efficiencies can all easily be achieved by outsourcing.

Where to find expert help?

Electoral Reform Services (ERS) has administered more MNT and MND elections than any other balloting organisation. This accumulated knowledge is passed onto our clients in the form of expert guidance. Our Project Consultants take care of the entire electoral process (nomination and selection), safeguarding the scheme from any possible omissions in practice or procedure.

There are no minimum or maximum limits to the size of scheme that ERS can help. Currently over one third of the top 100 pension schemes rely on the services of ERS. Conversely ERS also works with funds where there are less than 100 members.

ERS can support multi-channel voting using: post, internet, telephone, text, or any combination of these methods. All of these systems have been developed and maintained in-house. This unsurpassed industry expertise and specialist technology ensures that all components required for an election are closely controlled. This ensures that our exacting security levels and procedures are maintained and monitored at all times.

ERS can be appointed directly by a pension scheme. However we also work closely with all the leading pension consultants and administrators including:

  • Aon
  • Hewitt
  • Mercer
  • Watson Wyatt
  • Capita Hartshead
  • Hymans Robertson

As circumstances differ for every scheme, we can not offer a single fixed price for MNT and MND elections but we will produce a quote on demand for any bona fide pension scheme or its advisers that contacts us. For details of how to make contact please see: www.electoralreform.co.uk

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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