Sole trusteeship is growing. Harus Rai asks when is the right time for a trustee board to consider a move to such an arrangement.
Sole trusteeship is growing. Increasingly, pension schemes are seeing that a move from a traditional trustee board to a sole trustee is one that really adds value, and, with The Pensions Regulator's 21st century trusteeship initiative highlighting improved governance I expect this trend to continue. So, when is it worth considering sole trusteeship as an option?
Why move to a sole trustee?
There are various circumstances that might lead a scheme to consider a move to a sole trustee. Some of these include:
- Increasing difficulty finding both member-nominated and employer-nominated trustees to fill vacancies
- Ever-growing complexity of pension issues, solutions and legislative/regulatory frameworks placing additional burdens on the time of lay trustees
- Board members finding it difficult to agree on matters causing delays in the decision-making process
- Growing conflicts of interests for trustees who are employed by the sponsor
- A need to free up time of lay trustees to concentrate on the sponsor's business
What are the hurdles?
If contemplating a move to a sole trustee it is important to consult with your advisers to understand the implications and potential hurdles before embarking. I highlight three issues below but there are undoubtedly others that will need addressing:
- The trust deed and rules - it is important to check that your existing trust deed and rules allow for a move to a sole trustee and the steps that need to be satisfied. If the rules do not allow for such a change, a deed of amendment may be required.
- Changes to scheme documentation - moving from a trustee board to a sole trustee involves more than just the execution of a deed of removal and appointment of trustee. The change will also require a review - and, where necessary, amendment - of all scheme documents and agreements where a trustee board might be referenced.
Signatory lists for bank accounts and instructions to investment managers will also need to be changed where they refer to retiring trustees. Furthermore, the changes should be communicated to members.
- A stepping stone too far - one of the biggest hurdles to moving to a sole professional trustee is ensuring that the sponsor and existing trustee board are comfortable that responsibility will be passed to an independent firm. It is therefore important that all agree on the firm to be chosen. While a professional trustee must be independent and always act in the best interests of members, it should also look to create a collaborative environment with all stakeholders to ensure issues are resolved quickly and effectively.
Will the trend continue?
I anticipate a continuation of the trend towards sole trusteeship as schemes move along their flight path. Two other areas where I see sole trusteeship growing are:
- For those firms with many pension schemes which might be both DB and DC as these firms may well benefit from a common trustee.
- Traditionally, it would be the smaller schemes of sub-£100m which considered the sole trustee. However, I am also seeing schemes around £400m-500m now considering this option.
Is sole trusteeship right for all schemes?
Pensions most definitely do not fit into the one-size-fits-all category and for many schemes sole trusteeship may not, at present, be an appropriate option. Where a trustee board is working collaboratively, has an effective decision-making process, relevant experience and does not have difficulty finding trustees, then it is difficult to see a case for moving to a sole trustee. The board may benefit from the assistance of a professional co-trustee but, until the dynamics of the board changes, moving to a sole trusteeship may not add value.
When determining whether a professional trustee should be appointed, a trustee board should conduct an honest assessment of its capabilities to determine if it has the expertise to deal with the ever changing pensions environment.
In situations where gaps in knowledge have been identified, the board should work with its advisers to assess the value of improving trustee knowledge and understanding. Or, it would do well to consider whether those gaps would be better serviced by a professional trustee. Appointing a professional trustee does not mean that the current board is ineffective, it simply means that the board has recognised that particular skills are required that are best undertaken by a professional.
Harus Rai is head of sole trusteeship at Capital Cranfield
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