Can a sole trustee effectively replace a trustee board?
23 July 2018
If the benefit of a Trustee Board is that there is a range of skills, experience and viewpoints then how can a sole corporate trustee deliver these same benefits to a pension scheme?
How will I ensure experience isn’t lost?
There is no denying that a Trustee Board made up of a diverse mix of professional backgrounds, life experiences and personalities can be a hugely effective tool to get things done. However, this model, which sees all board members involved in all decisions, can result in delays whilst the whole board gets up to speed with an agenda item. In addition, the make-up of a traditional trustee board with member and employer nominated trustees, as well as, perhaps, trade union representatives, may result in conflict as differing priorities clash. When clients come to us considering a sole trustee the lack of unity on the board can be a reason why.
A common misconception is that a sole trustee is just one person operating alone. Whilst that could technically be the case, we approach being sole trustee as the appointment of a trust corporation, with a wider team readily available that brings additional insight, skills, resources and robustness to the role. This model ensures the relevant experience is available when required, without unnecessary involvement of all parties and with a united objective.
Of course, institutional knowledge can be as important to good scheme management as pension knowledge. A corporate trustee will often join a board as a trustee in order to gather this information before the board is disbanded. Alternatively a consultative committee is formed to work alongside the sole trustee for a period to ensure knowledge isn’t lost in the transition.
Will a sole trustee truly be independent?
It is usually the sponsor who drives the decision and ultimately appoints a sole trustee. As there are no longer member nominated trustees, there may be concern that the sole trustee will act in the best interests of the sponsor, not the members. It is in this area that the quality and integrity of the appointed sole trustee comes into play.
A good sole trustee will have strong governance processes in place which could be interrogated by third parties or members to ensure independence. An example might be quarterly peer reviews where a colleague examines the work undertaken by the trustee against a governance checklist. Alternatively, detailed written reports of decision making processes which are shared with stakeholders at regular intervals are an effective monitoring tool.
Will a sole trustee save the scheme money?
A key part of clients’ interest in a sole trustee model relates to efficiency, both time and cost. Sole trusteeship delivers this. By appointing a sole trustee with both breadth and depth of pension knowledge less time is required from advisers in explaining the background to their suggested course of action.
A sole trustee will have experience of different schemes and be able to make an informed decision of what is appropriate for each one. These decisions can be made more quickly than with a full board and delivery is owned by the sole trustee meaning there is no duplication of work or miscommunication on who is handling which tasks.
Why wouldn’t all schemes have a sole trustee?
Sole trusteeship currently tends to be favoured by schemes which are closed, with assets up to £500m. However, we are aware of schemes with more than £1bn of assets who are investigating the sole trustee governance model. Often the nature of these schemes means that some of the complexities have been dealt with and management should be a fairly routine task. A trustee board can bring unnecessary complications and therefore inefficiencies in both time and cost.
Some schemes struggle to fill their trustee roles due to small employee numbers or increasing time pressures on staff. In this case a sole trustee is a good solution. However, there are many schemes where the trustee board and, or the sponsor are extremely engaged. In this instance where the operations are slick, efficient and all parties are on good terms the idea of moving to sole trustee does not offer the same benefits.
Ultimately, a sole trustee can bring the same skill set as a full trustee board provided the selection of the trustee is done with the scheme’s specific requirements in mind. There are various sole trustee models and a good firm will tailor their solution to meet the scheme’s specific needs.
Read our FAQs for more about making the move to sole trustee.