How to build the ideal trustee board for members

But while both size and composition will depend on any number of variables, there are some common features in all schemes such as the size of the scheme, the size of the sponsor, whether the scheme is open or closed and, importantly, the history of the scheme.

Often the size and composition of trustee boards are inherited. For instance, the sponsor may have acquired businesses in the past and amalgamated their pension schemes into the parent, causing the member-nominated trustee representation to grow.

As time passes, circumstances change, with schemes closing to future accrual, members becoming deferred and the majority of them no longer working for the sponsoring employer. Yet the trustee arrangements put in place when very different circumstances prevailed are left unchanged and unchallenged.

At the opposite end of the spectrum, there are instances of streamlined arrangements, with boards typically composed of one employer-nominated trustee, one MNT and an independent trustee.

Clearly this enables a more focused approach to decision-making, but it can also place much greater responsibility on the individuals concerned, even with the appointment of an independent trustee.

Your trustees’ age profile

Another significant factor is the rise of the age profile of trustees. Increasingly, MNT positions are filled by pensioner members.

While they are ageing, the pool of people to replace them is also shrinking. Add to that the increased requirements for trustee knowledge and understanding of complex areas of regulation, guidance, investment and actuarial matters – all of which act as a deterrent to taking on the role of trustee.

Many schemes would benefit from a review of the size and composition of their trustee boards

Another feature of this debate is the effect of the MNT requirements on board composition. The minimum ratio of one-third MNTs has acted to drive up the number of trustees on boards. Where there are arrangements, a 50/50 split – five employer-nominated trustees and five MNTs – is not uncommon.

Taken as a whole, it would seem sensible for both sponsors and trustees to review the size and composition of their scheme’s trustee board when there is a significant change in circumstances. While it may have been appropriate for some schemes to have eight, 10 or more trustees in the past, that doesn’t mean it is the most effective arrangement now.

Getting people with the right skills and knowledge to become trustees, rather than playing a numbers game based on old attitudes of ‘them and us’, seems to be an idea that is gaining ground.

This can be seen in schemes where MNTs are elected because they have previously held high office in the sponsoring company, as scheme members can see the benefits of having an experienced person on the board, particularly if that person has a personal interest in the scheme as a recipient.

If there is a point to be made that has a general application it is that trustee boards, for the reasons stated, are likely to become smaller.

While there will always be vibrant, engaged and knowledgeable trustees willing to serve on the dwindling number of large, well-resourced schemes, the situation facing the rest is increasingly problematic as smaller schemes struggle to find skilled individuals to take on trustee roles.

This is an issue for both trustee and sponsor. For the former, disproportionately large boards can be both cumbersome and inefficient. 

For the latter, mitigating the fiscal drag that legacy defined benefit schemes have on their balance sheets is one of the top priorities, and they want to be confident their trust board arrangements are fit for purpose in the 21st century, and able to operate effectively in an increasingly complex regulatory and market framework.

It seems that from the perspective of both trustee and sponsor, many schemes would benefit from a review of the size and composition of their trustee boards.

In particular, consideration should be made as to whether the board would be more effective with a smaller number of better-qualified trustees. In this way, it should be more favourably placed to face the complex issues in a rapidly evolving pensions landscape.

Peter Askins is a director at Independent Trustee Services