Stronger pension governance must preserve choice, not prescribe a single model

The Government’s response to its trusteeship consultation published today places significant emphasis on trustee board composition, member representation and the importance of diverse perspectives in decision-making. It also proposes new safeguards around moves to professional corporate sole trusteeship (PCST), including clearer criteria for when the model is appropriate and a requirement for existing trustee boards to approve an employer-proposed transition to PCST.

LawDeb supports the objective of ensuring that every pension scheme has robust, independent and appropriately challenged decision-making. But it cautions against equating board size or a particular governance structure with governance and decision-making quality.

Scott Pinder, Trustee Director and Head of Corporate Sole Trustee at LawDeb, said:

“There should be no argument about the destination. We all want pension schemes to have robust governance, strong challenge and decisions firmly focused on members. The question is whether prescribing how schemes get there actually improves outcomes.

“One of the great strengths of UK occupational pensions over the last 20 years has been its plurality. Member and employer nominated trustees, independent trustees, professional trustees, master trusts, corporate sole trustees and now consolidators all have an important part to play. Different models work for different schemes and circumstances.

“Diversity of thought matters enormously. But diversity of thought and effective challenge do not automatically follow from the number of people sitting around a board table. Equally, professional corporate sole trusteeship should never mean decision-making resting unchecked with a single individual. The best models build in peer review, dual controls, escalation and genuine challenge, and connection with members such as using employer forums and consultative committees.

“If Government believes additional safeguards are required around moves to PCST, we should engage positively with that. But any new requirements need to address a clearly identified governance risk and produce better outcomes, rather than simply making one model harder to adopt or attempting to force schemes into pre-determined boxes. They also need to consider how to manage any conflicts of interest of those from whom any agreement is sought.[1]

“The same principle should apply to megafunds and other emerging consolidated structures. Scale may justify greater scrutiny and stronger assurance, but board size should not become a proxy for effective governance. What ultimately matters is capability, independence, member voice, resilience and the quality of the decisions being made.”

LawDeb’s response to the consultation supported higher standards across trusteeship, including stronger expectations around skills, conflicts of interest, capacity and resourcing, alongside enhanced governance expectations for megafunds reflecting their scale and systemic importance. We welcome the Government’s focus on raising trustee capability and assessing skills collectively at board level, while taking a proportionate approach to how those standards are delivered.

Pinder added:

“We should be careful not to try to solve tomorrow’s governance challenges by narrowing the choices available to schemes. The pensions industry has evolved precisely because different governance models have been able to develop and learn from one another.

“Raise the bar, absolutely. Strengthen assurance where there is evidence that it is needed. But regulate the risk, not the label.”