Fraser Sparks has kindly agreed to contribute the following blog for the Spence & Partners’ website. He is a partner at Stephenson Harwood with over ten years’ experience of advising employers and trustees on all aspects of pensions law.
For one reason or another it seems likely that within a very short space of time we will reach a point when virtually all defined benefit occupational pension schemes will have at least one professional trustee on their board. This blog is not intended to be an advertisement for professional trustees; rather it looks at some of the reasons why business is booming in this sector.
One must start by looking at the context within which DB schemes now operate. Most are closed to new entrants – so are no longer relevant to the employer’s recruitment policy; and an ever increasing number are ending future accrual of benefits – and so are no longer relevant to the employer’s retention policy. We have therefore seen a shift in the way pension schemes are managed by employers – this is no longer a human resources issue, it is simply a finance/ treasury issue.
Once this shift in management has been made, the employer might not wish to commit significant management time to the general operation and administration of the scheme. Instead, it might wish to focus on the financial liability issues which it can manage by acting only as an employer by way of the valuation and investment strategy process. Several employers are coming to the conclusion that it is easier to manage these issues if there is a clear delineation between the employer and the trustee board. This allows there to be a constructive conversation unencumbered by people having to wear different hats at different times. Employers are also seeing the benefits of paying a professional person to manage the general operation of the scheme instead of asking its employees to do this in their spare time.
The other side of the coin is that, arguably, the Pensions Regulator is pushing employers into appointing professional trustees. This is not being achieved by tPR using its legislative powers; rather it is because every conversation tPR has with a board of trustees starts by asking whether conflicts of interest have been properly managed and, in that context, whether consideration has been given to appointing a professional trustee. One might be forgiven for thinking that tPR would prefer every scheme to have a professional trustee on its board so that tPR could have confidence that each board has a base level of ability, understanding and professionalism.
We might therefore see that, in the future, many schemes simply have a single professional trustee in place. That then raises some interesting questions of whether economies of scale could be achieved to reduce the cost of administering schemes. Why, for instance, would a professional trustee of several ongoing schemes not seek to appoint the same administrators, advisers and investment managers to all of its schemes on the basis, of course, that the fees will be lower than if they were looking to appoint someone in relation to only one of their schemes?
Business certainly looks good for professional trustees!
Stephenson Harwood LLP