New Year - New Professional Pension Trustee?

Joining the Trustee Board

There are many reasons, regularly reported in the pension press, as to why we are seeing an increase in the number of Professional Trustees appointments. You could be forgiven for thinking the march of the Sole Trustee is irresistible, but a Professional Trustee can also add value as a member of the Board.

Appointing a Professional Trustee for the first time as a co-trustee is often a good way for the Employer to add specific skills to the existing Board and could be on an interim basis to meet situations such as a complex valuation, managing conflicts of interest, or overseeing investment strategies and movement towards buyout.

Suitable Circumstances for a Board appointment:

This approach generally works well when the existing Trustee Board have knowledge of the Scheme and are able to commit the time necessary to ensure the overall governance of the Scheme is maintained on a day to day basis, whilst appreciating that they would benefit from the additional benefits a Professional Trustee would provide.

This approach might also be favoured where the Trustee Board and / or Sponsor are concerned about relinquishing what could be considered excessive control to the Professional Trustee.

Key Benefits of appointing a Professional Pension Trustee to the Trustee Board:

There are many benefits to appointing a professional trustee as a member of the Board working in tandem with the existing trustee directors. For example:

• Retention of existing Trustee knowledge, including Scheme history within the Trustee Board and hence reassuring to Scheme members.
• The Professional Trustee could be selected with a specific focus on their capacity for filling gaps that may exist in expertise, as identified within the existing Board. The Professional Trustee appointment could also be managed to improve the Diversity and Inclusion (D&I) credentials of the Trustee Board.
• The Trustee Board, Scheme Sponsor and Scheme members will benefit from the specialist capabilities and additional capacity provided by the Professional Trustee.
• The Professional Trustee can use their knowledge and experience to ensure that work undertaken by other advisers is appropriate in both nature and cost.
• This arrangement could also be used as a potential interim stage to appointing the Professional Trustee as Chair or Sole Trustee in a way that allows the Professional Trustee to gain knowledge about the Scheme and its operation from the existing Trustees. This allows trust and understanding to be established between all the parties involved, including the Scheme’s members.
• The employment of a Professional Trustee within the Trustee Board can also be extremely useful in managing challenging funding negotiations or covenant assessments; gaining access to confidential information in a manner acceptable to the Scheme’s Sponsor and the Trustee Board; managing conflicts of interest within the Trustee Board; and especially under scrutiny from the Pension Regulator (TPR); during corporate transactions; or in an insolvency scenario.

There may therefore be many valid reasons to consider employing an Independent Trustee to sit on the Trustee Board and that so doing could make Scheme management more efficient and effective.

And the disadvantages of appointing a Professional Trustee?

This arrangement is unlikely to be effective unless the existing Trustee Board is relatively experienced and engaged. For many Schemes, especially smaller ones, there can be difficulties finding individuals able and prepared to become Trustees. When this is the case, it is probable that appointing the Professional Trustee as either Chair or Sole Trustee from the outset might be optimal.

Finally, for Schemes where there are governance issues or there is a clear objective to move to buyout liabilities and remove the Scheme from the company balance sheet, it can be beneficial to use a Professional Trustee as Chair either of the main board or specialist sub-committee so that the existing Trustee Board are not overloaded by their Trustee related work.

There may also be concerns around the costs incurred and control ceded to a Professional Trustee, even within a larger Board. These issues can generally be overcome with a clear understanding of each client’s requirements and objectives, which is why it is important to spend time ahead of any appointment clarifying expectations.

Having the discussion.

Even where it’s decided not to appoint an Independent Trustee, consideration of the advantages and disadvantages of so doing can be beneficial. Indeed, even in situations when it’s concluded the appointment of a Professional Trustee is not immediately appropriate, it may be decided that other appointments will help the Trustee Board and the Scheme operate more effectively or efficiently. Examples of such support might be: Scheme Secretariat; Trustee Training; Adviser Reviews; Adviser Benchmarking; Assessment of Trustee Board effectiveness; Project Management; Internal Controls Audit, and so on. These are all areas in which we at Pi Partnership Group have expertise and resource to help.

If you wish to discuss the appointment of a Professional Trustee, we can be contacted on enquiries@pipg.co.uk to discuss your requirements in more detail.

Terry Webster is an experienced Independent Trustee and has over 20 years’ experience in the pension industry. A qualified actuary, in 2017 he completed a “One Planet“ MBA accredited by the World Wildlife Fund which has brought an additional perspective to his role as a trustee on embedding ESG, where he is able to bring a clear focus to the various aspects of the impact of sustainability.