Case Study: Transitioning to Corporate Sole Trustee

Scheme Background

  • Governed by a corporate trustee board comprising six trustee directors
  • Assets of around £60m and a total membership of around 200
  • Closed to new entrants, still a small number of active members
  • Non-UK Sponsor in situ since late 2018, when it replaced the existing sponsor which went out of business

Drivers for moving to CST

The Scheme had in place a number of factors which are common amongst schemes interested in CST, for example:

  • Non-UK sponsor with little understanding of UK Pensions legislation and regulation
  • A very long serving Chair of Trustees with a paternalistic and often inefficient approach
  • Resignation of three of the trustee directors in late 2019 as a consequence of changes to their employment
  • A number of challenges around administration such as:
    • TPA provided administrative support rather than a full administration service presenting risks to the ongoing administration
    • a lack of documented procedures and processes
    • issues relating to transitioning the admin database to a platform shared with a related employer’s pension scheme, pending consideration of a potential scheme merger

Following a competitive tender process, the sponsor invited LawDeb to serve on the corporate trustee board as an independent professional trustee and LawDeb was appointed in March 2020, at the beginning of the global Covid-19 pandemic.

The original expectation was for LawDeb to be appointed at a later date to act as CST to the scheme. However, with the funding position deteriorating and the impact of the pandemic on global markets, the sponsor subsequently asked LawDeb to act as trustee on a sole trustee basis, without a further tender process, in mid-2020.

The transition to CST

A number of key actions were initiated to make this change, including:

  • due diligence on the scheme rules and the process for appointing a CST
  • the formal appointment of LawDeb as CST (the appropriate due diligence procedures had already been completed prior to LawDeb’s appointment as a co-trustee director of the scheme in March 2020)
  • the removal of the existing corporate trustee board, noting that there was some reluctance in terms of the remaining trustees in ‘letting go’ so this needed to be handled sensitively
  • the execution of novation agreements between the various appointed advisers and the new trustee
  • requisite updates to regulatory records

LawDeb as CST has delivered…

Efficiency and cost-effectiveness:

  • shorter and more focused meetings when required
  • less need for advisor support and training
  • appointment of a new investment consultant (aligning with arrangements on other schemes with the same sponsor) to reduce fees
  • changes to the investment strategy from fiduciary management to a more steam-lined platform approach

Improved management and governance of the scheme through:

  • the appointment of the new pensions manager
  • the appointment of a new external secretary to the trustee from a reputable third party consultancy
  • the implementation of new and refreshed trustee governance policies and the agreement of updated scheme management, secretarial and governance processes and responsibilities
  • Pegasus, LawDeb’s pensions executive arm, who had originally been involved in the management of the administration transition, now provide governance support to the CST and were closely involved in many aspects of the transition to the sole trustee arrangement

Certainty to the sponsor: 

  • the change in structure allowed for a focus on building strong links between the trustee, pensions manager and corporate advisors to ensure good flow of information and review of strategy 

Access to a broader range of skills and governance procedures: 

  • as well as the named Lead and Peer Directors and Pegasus Pensions Executive, LawDeb’s team model ensures access to the wider team of 22 trustees and 20 pensions executives who can be brought in for specialist expertise (this allowed for specific legal input on some of the novation and contracting as well as changes to the investment strategy 

Consideration, agreement and implementation of a best practice ‘roadmap’: 

  • this allowed best practice governance to be established (such as cyber risk policies) and is now supporting work on the new single code due in 2022

Conclusion

We are often appointed as co-trustee to facilitate a smooth and gradual move to CST. In this case the process was expedited due to market factors, but the process followed remained the same.

This approach to transition is hugely effective when there is an engaged and experienced trustee board who both want to share their knowledge and be sure the scheme will remain in good hands.

We have also supported CST client transition for:

  • A new trust
  • Rapid change (new appointment immediately as CST)

In all cases, where appropriate, existing trustee knowledge can be retained for a period through a ‘consultative’ group to give access to outgoing trustees and others. This can also provide comfort to the outgoing trustee that they will have input and an understanding of the transition.

For more details on this case study, or on Corporate Sole Trusteeship contact Alan Baker