Should all UK pension schemes have an independent professional trustee?
22 February 2018
By Michael Chatterton
With the news of Carillion’s demise we see another major UK pension scheme at risk of joining the PPF. For many it comes as no surprise that a scheme with such a large deficit, more than half a billion pounds, has found itself in this position and they ask the question: What more should we be doing to protect schemes from this fate?
LawDeb is the largest provider of independent professional trustee (IPT) services to UK pension schemes. In 2017 LawDeb was appointed to nearly three times as many pension scheme trustee boards as in the previous year and it is a trend that has been noticed by others in the industry. Bob Scott, Senior Partner at LCP commented
“Increasingly we find that those trustee boards that do not have Independent Professional Trustees involved are raising the matter, particularly when there is a change of Chair or there is significant turnover of trustees. Sometimes the sponsor feels the scheme lacks direction or the expertise needed to move things on and takes action.”
As the weight of pension scheme deficit on the sponsor’s bottom line continue to cause concern for CFOs, and the spotlight shines on them each time another scheme sponsor files for bankruptcy, they are looking for ways to plug their own shortfall. Increasingly we have seen corporate stakeholders take an active interest in the management of schemes and many consider the appointment of an independent trustee will bring industry insight and improve efficiency of the board on the journey towards being fully funded.
There is no doubt that the actions of The Pension Regulator (tPR) have played a part in this development as they emphasise the need for more and stronger professional trusteeship. In recent cases such as the British Steel and BHS2 schemes they have installed IPTs to manage the provision of an alternative to the Pension Protection Fund offering.
So what does an IT bring to the scheme that could reduce risk?
Of the enquiries we received in 2017 over 80% list in-depth pension knowledge or experience of a specific pension challenge, such as de-risking, as keys factor for the appointment. Whilst in many ways a trustee's role is not pension specific, but more about the ability to make sound judgement based on the information provided, schemes that have an IPT benefit from someone who can process information quickly and add their own experience to the decision-making.
ICI, for whom LawDeb act as an IPT said “Our IT’s in-depth knowledge of pensions de-risking in general and the bulk annuity market in particular helped focus our selection of specialist adviser and built confidence across the board in approving and implementing the strategy”
Of course, a newly appointed IPT has to pick up the institutional knowledge that aides decision making and which can ease communication with members, particularly on schemes where members are unhappy about past actions, such as a move from RPI to CPI. The independent nature of an IPT can bridge the knowledge gaps by encouraging the trustee board to share insight more effectively, which positively impacts decisions.
How much difference can an IT really have when the sponsor’s future is uncertain?
Naturally, no trustee, independent or otherwise can prevent a sponsor from bankruptcy. However, an experienced IPT may help the trustees look beyond the obvious and take steps to protect the scheme before the problem arises. Conversely there may be situations where trustees are unduly concerned and the IPT may help the board reach proportionate conclusions what should be sought from the sponsor. In addition, the speed of decision making on boards with an IPT is often noticeably faster than one without and these small steps alone can be enough to protect more member benefits than would otherwise be the case.
And what can you, as a trustee board, do now to protect your members?
Appointing an IPT is a big decision and even then there may be no quick wins, but there are basic steps that any trustee board can take to work more effectively to protect their members.
Learn from others – whether that is from other schemes and how they have dealt with situations or from your fellow trustees and advisers, take an interest in what they say and ask them questions about their experiences
Do your homework – ensure you are up to date with your scheme documents and industry resources such as the tPR Trustee Toolkit
Monitor the situation – how engaged is the Sponsor with the trustee board and what corporate decision are they making, for example generous dividend payments? Ask for updates on the implementation of decisions you made in your meetings from the trustee’s and the sponsor’s advisers