Data crunch: The professional trustee market is expected to grow further over the next five years as up to 90 per cent of schemes make appointments, but the number of large companies is expected to almost halve, according to new research.
Isio’s 2022 Professional Independent Trustee Survey report surveyed 12 boutique trustee companies representing 2,000 pension funds with more than £1tn in assets, which showed more than 200 new appointments across 2021, with revenue for the 12 companies rising by 20 per cent.
There’s a quiet revolution happening in the pensions industry as professional trustee firms grow rapidly. Traditional pension fund boards made up of company and member representatives seem to be in terminal decline
Mike Smedley, Isio
The report estimated that between 50 per cent and 60 per cent of schemes now have some sort of professional trustee arrangement, although this is expected to rise to 90 per cent over the next five years.
Similar growth is expected for sole trustee arrangements. At present, around 20 per cent of schemes have a sole corporate trustee, but this could rise to as much as 50 per cent.
The number of large professional trustee companies, meanwhile, is expected to drop from the existing 12 to between six and eight over the same period.
A shifting market
The survey found that although Capital Cranfield led the way with more than 300 appointments, Law Debenture boasted the largest figure for scheme assets, sitting at £326bn. Capital Cranfield took second place in assets at £210bn, ahead of ITS at £145bn and BESTrustees at £133bn.
The market overall saw 200 new appointments, and a marked increase in competition for smaller schemes in particular. This has led to a growing differentiation in companies’ trustee models, the report splitting these offerings into two broad themes: non-executive/pure trustee models on the one hand, and executive trustee/full service models on the other.
Non-executive models offer conventional trustee board members with a range of skills, with these companies focusing on the value added by trustee oversight, while leaving the day-to-day management to the scheme’s support team and advisers.
Executive trustee arrangements, on the other hand, offer a “one-stop shop” service taking on “the majority of secretarial and governance duties, run projects, and manage the day-to-day running of the scheme”, the report stated.
The survey identified BESTrustees, Capital Cranfield and PAN Trustees as opting for the former approach, and 20-20 Trustees, Dalriada, Entrust and Ross Trustees opting for the latter, while Law Debenture, ITS, Pi, PSGS and PTL sit some way between the two poles.
Entrust in particular focuses on sole trusteeship, though Dalriada, Pi and PSGS saw half their business done in the form of sole trustee appointments, while Law Debenture has the “most focus” on co-trustee roles.
Sole corporate trustee appointments rose in 2021, from 800 to 860, with the survey identifying a “material number” of such appointments to schemes with more than £1bn in assets.
“The primary purpose of a sole corporate trustee is typically to streamline operations, generate efficiencies, and facilitate more rapid decisions with less reliance on trustee meeting schedules and the need for trustee upskilling,” the report explained.
“It can be particularly relevant where firms are struggling to find appropriate individual trustees, and for schemes that are planning a risk transfer transaction such as an insurance buyout.”
Isio attributed the overall growth in professional trustee appointments to increased regulatory burdens, as well as the fact so many defined benefit schemes becoming legacy concerns that are less relevant to employers in the day-to-day running of the business.
Three-quarters of professional trustee appointments were as sole trustees or chair of trustees, with the proportion appointed as co-trustees declining.
Sole trusteeship to achieve ‘significant growth’ in 2022
Data crunch: The professional corporate sole trusteeship model is expected to have a 'very positive' impact on scheme governance in 2022, with smaller plans being the quickest on the uptake, a Ross Trustees survey finds.
Mike Smedley, partner at Isio, said: “There’s a quiet revolution happening in the pensions industry as professional trustee firms grow rapidly. Traditional pension fund boards made up of company and member representatives seem to be in terminal decline.
“Professional trustees are helping to raise the standards of pension fund governance, bringing their expertise and market knowledge. And the door is wide open for them, as many employers struggle to find trustees in the face of growing regulation and responsibilities.”
He added that this “sea change” in the industry “means that millions of people with private sector pensions are relying on these firms to do a good job. It’s important that the public know who these firms are and have confidence in them, and this may come with calls for more regulation”.
