Professional trustee board appointments increase 60%

The research from the consultancy, which analysed data collected from 13 of the major professional trustee companies and data obtained by the Pensions Regulator, also showed there is a growing trend for bigger schemes with assets worth more than £1bn to replace their trustee boards with professional corporate sole trustees.

Currently, one in three schemes with a professional trustee are now under a PCST arrangement.

According to the report, moving to a PCST arrangement is likely to be driven by the need for simpler governance and cost savings. 

LCP argued that the professional trustee market has seen an ‘’explosion of activity’’ over the past few years, with 350 professional trustees now looking after £400bn of pension scheme money.

LCP attributed the rise in professional trustee usage to many factors, including a decline in the number of member-nominated trustees putting themselves forward and less appetite for senior corporate individuals to act as trustees, in light of conflict of interest concerns. 

The consultancy also pointed out the need for a professional trustee with broad and deep experience and knowledge of the increasing complexity and weight of regulation, requirements and guidance of DB schemes to add value within a board.

Demand for professional trustees has increased sharply, but demand for sole traders, which are not part of a company, seems to be increasing at a significantly slower rate: 4 per cent of UK pension schemes had a sole trader as a professional trustee five years ago, which now stands at 5 per cent.

The research showed there is also little demand for fiduciary management solutions. When it comes to efficiencies, PCSTs tend to focus on more streamlined services provided by their advisers. A quarter of all schemes with a PCST prefer to group key services with one company for efficiency purposes. 

Nathalie Sims, head of strategic pension relationships at LCP, argued that for many pension scheme sponsors moving to a PCST model is a "no-brainer".

She said: ‘’Dealing with one firm represented by one or two people seems far more straightforward than having to discuss projects with the entire trustee board.

“This is especially true for schemes that are trying to run large projects during tight timeframes, such as guaranteed minimum pension equalisations [and] manage buy-ins or buy-outs.”

However, Sims noted that PCSTs are not suitable for every pension scheme.

She added: ”The model can sometimes highlight conflicts, especially if the change happens around tense valuation negotiations. 

“The key is to ensure there remains independence and diversity of thought once appointed and that the transition is done carefully to prevent loss of scheme knowledge.”