Professional trustees – why have one?
More and more pension schemes are opting to appoint a professional trustee.
The ever-increasing burden of regulation, greater diversity of investment products and scheme deﬁcits combine to make managing a pension scheme an ever more complex undertaking. Getting in a professional can add valuable experience to the trustee board and help improve standards of governance.
Anthony Raymond, TPR’s Acting Executive Director for Regulatory Policy, said:
It is vital that trustees have the right skills to ensure that their pension scheme is managed effectively but it is also right that they are held to account if they fail to provide proper governance. Professional trustees bring real benefits to a board through their expertise and experience, sharing knowledge and good practice from other schemes.
Mark Futcher, head of workplace wealth at consultancy Barnett Waddingham also says:
They also bring a bit of discipline to the trustee board and make them concentrate on the things that are really relevant.
Appointing a professional, whose working life is steeped in pensions, as opposed to a lay trustee, who takes on the role as an adjunct to their day job, can bring the beneﬁt of their experience and knowledge to improve the working of a scheme.
What are the benefits of having a Pension Trustee?
1. Cost Saving
Whilst there is an additional cost to having a professional trustee on board, a good professional trustee may actually save the scheme money. Having direct knowledge and experience of the pensions industry means they can often answer questions or clarify issues which would otherwise require external advice from the scheme consultants (even more costly). Because many professional trustees are former pension industry professionals themselves, this can signiﬁcantly reduce the amount of external advice required and offset the costs.
As professional trustees represent more than one scheme and will have experience of working with many other pension schemes, the experience gained is of great advantage to the Trustee Board.
For example if there are changes to the pension scheme such as if it’s closed to future accrual, or it’s moving into Defined Contribution, or looking at different types of alternative assets – lay trustees usually only experience those changes once. With a professional trustee the chances are they have been through it before and bring that experience. But member-nominated trustees can learn a lot from their independent peers, and together can work effectively in the best interests of their scheme and members. As an aside, it’s also important that professional trustees demonstrate that they can learn from lay trustees.
A commonly-levelled criticism is that external consultants want to push the most novel investment products or latest corporate thinking, regardless of whether it may be in the best interests of the scheme.
Trustees need to be satisﬁed they are not being fed a ‘house view’ by their consultants or not being sold new or fashionable products or services, regardless of whether they may be suitable for the specific needs of the scheme.
A professional trustee provides independence from this. They can support the board by articulating the concerns of the trustees in questioning scheme advisers to ensure that it’s not a case of ‘emperors’ new clothes’. And if there are multiple options, the professional trustee can help provide the best solution for the scheme as there are no vested interests in choosing one financial product over another.
An experienced professional trustee is often more conﬁdent in speaking up about the concerns of other trustees and questioning the scheme’s advisers. But it’s important that you find the best professional trustee to work with you.
You can see a full list of the pros and cons of having a professional trustee here
What to look for when appointing a professional trustee
1. Match the skills of the professional trustee to the requirements of the scheme
One way of ensuring that a professional trustee achieves what they are meant to, is to agree at the outset what is required and to appoint a person with appropriate skills.
2. Continuing assessment is good practice
You would also expect your professional trustees to undergo their own continual assessment and skills gain given you are paying for their skills and knowledge. So whilst they sit alongside all the other members of the trustee board with and fulﬁl the same role and responsibilities, the Pensions Regulator expects them to be able to operate to a higher level, with rigorous standards to be achieved. Ask them what continuing professional development they carry out.
3. The right mindset
The professional trustee is there to support as well as give advice so it’s important that you find someone with whom you can build a good working relationship.
Soft skills and the listening skills are as important as any technical skills in helping schemes. You don’t want the professional trustee who tells you they are right and what they say should go. A Trustee Board, like any other, works best when there is collaboration and confidence in each other’s skills and knowledge. Essentially, can you see them sitting around the table with other trustees working together to resolve an issue?
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