Lay Trustees - The Future

Blog 25 Sep 2007 By
The obvious question regarding acting as a pension scheme trustee in the current environment is: who in their right mind would want to take on a role for which they have had no relevant training or experience, which carries unlimited personal liability, up to and including the value of your house, in an increasingly litigious world, and provides little tangible reward?

Company directors are finding it increasingly difficult to perform both the role of company director and pension scheme trustee given the potential conflicts of interest that exist around setting scheme contributions, agreeing future investment strategy or dealing with a corporate restructure.

It’s no longer sufficient to be whiter than white; you have to be perceived to be whiter than white. This can be difficult when many members think that the only cause of a deficit in their pension scheme must be either incompetence or fraud.

It is also difficult for lay trustees to keep up to date with the requirements of new codes of conduct issued as a result of the Pensions Act covering trustee training and knowledge and internal controls procedures.

In addition many schemes have to run member nominated trustee elections, which is often a case of seeking out the unwilling.

Given these issues, it’s perhaps unsurprising that many employers and trustee boards are seeking out professional help in the form of independent professional trustees. In so doing it’s crucial that those charged with appointing a professional trustee are fully aware of the various roles and duties of a professional trustee, the type of trustee available and the range of services they can provide.

The role of a professional trustee is to share responsibility with each of the other trustees for the management of the scheme as well as its administration, funding, investment and good governance. A professional trustee with a solid grounding in these key areas should add considerable value.

Following the introduction of the Pensions Act 2004, professional trustees are increasingly becoming involved in assisting other trustees to develop training programmes to close any skills gaps identified within the trustee board.

Perhaps the most important aspect of the professional trustee role is that not only are they professional, but they are also independent from both the sponsoring employer and the scheme members, in a way that lay trustees are not.

The independence of a professional trustee is distinctly advantageous when managing and identifying conflicts of interest.

With some company officials now likely to find themselves conflicted when acting as a trustee, as an independent body a professional trustee is better placed to give a clear independent direction to trustees.

This can help make the decision-making process more effective and avoid excessive ‘groundhog day’ meetings where issues are revisited as trustees struggle to manage the conflicts they face. Professional trustees will typically have extensive experience of governance issues, which are increasingly becoming a focus of legislation surrounding trustee bodies.

The professional trustee is well placed to assume responsibility for all the necessary preparations for trustee meetings, from drafting business plans and monitoring internal controls – the latest guidance note issued by the Pensions Regulator – to monitoring all aspects of the scheme.

The appointment of a professional trustee helps free up valuable time and resources of company personnel at a time when new legislation and regulations are making the job of a trustee more onerous and the potential saving in terms of trustee training costs should not be underestimated.

In addition there may be financial savings resulting from more focused controlled service provision from scheme advisers. All these factors may well mean that the appointment of a professional trustee is more cost neutral than may be imagined.

Furthermore, in the event of an insolvency where an employer is running an occupational pension scheme, the Pensions Regulator is responsible for appointing independent trustees under Section 120 of the Pensions Act 2004. Acting as a professional trustee to an insolvent scheme brings its own set of issues, typically involving the provision of assistance to help manage the progress of a scheme through the Pensions Protection Fund assessment process with the ultimate aim of getting members’ benefits paid out through the PPF.

I can only see the role of the professional pension scheme trustee being increasingly in demand, but it is vitally important when making the appointment that the employer and trustees seek out a trustee with a skill set best suited to their individual circumstances. Having worked with a number of trustee boards, I must say that, without exception, my experience is that people who take on the role approach it with a great degree of integrity.

I have no doubt that many lay trustees can continue to render valuable service to their scheme members. My only question is the obvious one.

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