Three-quarters of hybrid scheme trustees spend more time on their defined benefit offerings than defined contribution, sparking concerns that they are failing to respond to the shift to DC.
The continuing closure of DB schemes – driven by the desire to remove risk from company balance sheets – and the ongoing auto-enrolment reform are set to drive up the membership and total assets in DC schemes over the coming years.
Key findings
75% of trustees spend more time on DB than DC
82% of trustees said demands on them are increasing, with none saying they were decreasing.
54% of respondents believed maladministration would put them at the highest risk of claims, the most widespread choice.
Source: Baker Tilly's Trusteeship Report, Summer 2014.
Accountancy Baker Tilly’s Trustee Report, published earlier this month, quizzed more than 100 trustees from DB, DC and hybrid schemes on standards and governance issues.
It concluded the lack of trustee focus on DC demonstrates that the Pensions Regulator’s campaign on this point had not had the desired impact, adding: “Given that it is recognised by respondents that maladministration produces the highest risk of claims, this lack of progress should be of concern, particularly in hybrid arrangements.”
Nita Tinn, director at Independent Trustee Services, said the findings were not a surprise but added changes were already underway.
“A few years ago this might have been 90 per cent [DB] to 10 per cent [DC],” she said. “Most schemes are legacy DB, that is what most trustees have been doing throughout their career.”
She added that many trustees are DB savers themselves, which could make increased focus on DC issues less likely.
“A broad base of trustees is needed,” said Tinn. “They must have the time and willingness to adapt to the changes ahead.”
Jonathan Reynolds, client director at Capital Cranfield Trustees, said DB demanded a more labour-intensive approach.
“With a DB scheme you have a strong employer focus and voice that you just don’t get from individuals in DC schemes,” he said. “Currently in DC there isn’t anything that forces the trustees’ attention. This will change over time as DC becomes the dominant form of provision.”
Richard Butcher, managing director at independent trustee company PTL, warned that as DC membership increases there will be a greater potential for individuals to litigate against schemes.
With a DB scheme you have a strong employer focus and voice that you just don’t get from individuals in DC schemes
Jonathan Reynolds, Capital Cranfield Trustees
The Baker Tilly report revealed trustees currently regard maladministration as the greatest claims risk to schemes, with more than half of respondents ranking it as their priority risk.
Poor investment choices and misleading member communications were also highlighted as significant concerns, reflecting the continued need for focus on governance processes.
Butcher said: “In that context, risk management is not about schedules but about challenging ourselves and co-trustees to make decisions on a chosen course of action.”
Increased demands
The report also found more than 80 per cent of trustees believed demands on them were increasing, including a third who said they were increasing rapidly.
Yet respondents did not rate training as major cause for concern – eight out of 10 trustees were satisfied with the current training in place.
Industry experts, however, drew attention to the crucial role that training and development will play in the governance of DC schemes in coming years.
Reynolds felt six months’ intensive training was insufficient to prepare lay trustees for the increasing demands of their role.
“Schemes must ensure that they have really good training programmes in place,” he said. “Larger schemes might already have the structure, but smaller schemes will come under increasing pressure.”
