Trustees in the 21st Century

The Pensions Regulator includes in its Four Priorities for the year its ‘21^st Century Trusteeship’ programme.  The Regulator recognises that the needs of all trustees are not equal, and has a plan to target the differing needs of different types of trustees but, what has really changed for the ‘20th Century Boy’[1], what does trusteeship look like in the 21^st Century?

The environment we work in has never been more difficult; with spiralling DC governance requirements; the minefield of pension freedoms within a liberation fraud back drop; the impact of unrelenting low Gilt yields…The list is endless, the job is increasingly complicated and the stakes are ever higher.

Recent high profile employer insolvencies are raising questions about how trustees monitor scheme funding.  Trustees need to monitor all three aspects of Integrated Risk Management – Covenant, Funding and Investment.  The interaction of all three points is key; to concentrate on one in isolation is meaningless.   Exactly how frequently monitoring needs to occur, and exactly which aspects are focused on, depends on the specific circumstances of the scheme and the sponsor.

The Regulator estimates that deficits have increased by 20-35% in the last three years.   To maintain existing recovery periods trustee boards will have to negotiate up to a 100% increase in deficit recovery contributions in a number of cases, in an environment where existing contribution rates are already stretching many sponsors.

Who would be a trustee in the 21^st Century with the potential of being called in front of Parliament?  How can you be sure that you covered all the angles?  That you acted at all times in members’ interests without conflict?  That you sought the necessary advice rather than taking what your advisers offered?  Were I a lay trustee of the BHS scheme I would be very glad that we had a professional chair to represent us.

Sometimes the professional trustee is thought of as another adviser, another mouth to feed.  The professional trustee is not an adviser they are much more important; advisers advise, trustees make decisions and have legal responsibility for those decisions.  The right professional trustee drives the advisers; they provide a balance of knowledge to ensure that the trustees are in control of the agenda; receive the necessary advice and are able to challenge that advice.  By targeting adviser spend and maximising value the right professional trustee can pay for themselves and even achieve a reduction in total scheme expenditure.

The 21^st Century Occupational Pension Scheme needs constant executive management.  The job of the 21^st Century Trustee extends beyond quarterly meetings, it is more complicated and risky than ever before it is seldom boring, but very much not like rock and roll.

[1] ’20th Century Boy’ song by T.Rex: https://www.youtube.com/watch?v=JB6WZu8IAZg