Any Other Business: Lawyers, actuaries, professional trustees. The world of pensions is so full of highly specialised roles it can seem bizarre so much of the decision-making comes down to elected trustees who may have no experience with pensions.
Trustees' capabilities and limitations have been under the spotlight for a while to the extent that, as a group, they could be perceived as having somewhat of an image problem – despite the fact that the bulk strive exceptionally hard to help achieve the best outcomes for their scheme members.
Even the most intelligent people struggle to make good decisions when they lack experience or all the relevant information, and being the newcomer to a board setting can make it especially difficult to speak up.
So how do lay trustees make sure they stay within their boundaries of competence but avoid being taken for a ride by their advisers or peers?
It may not be an attempt to rip anyone off, but it’s just mission creep and inefficiency
Richard Butcher, PTL
David Blake, director of the Pensions Institute at Cass Business School, said, for example, that local authority schemes faced problems as individuals would be elected as councillors on local issues and then end up sitting on the pension board.
“The amateurishness we’ve got now isn’t suited to the modern world,” he said.
But professional trustees have said the strength of lay trustees was in the knowledge they have of the sponsoring employer and how it operates, whereas professional advisers bring knowledge of a specific area such as law or investment.
Richard Butcher, managing director at professional trustee company PTL, said: “Lay trustees bring an awful lot to the table, but if this isn’t what they do every day they run the risk of having the wool pulled over their eyes.”
He added the majority of instances of mismanagement is not the result of people being intentionally misled, but of failing to recognise inefficiencies.
Butcher gave the example of a scheme that brought in the scheme actuary, who was charging full rates, to take minutes during trustee meetings.
“It may not be an attempt to rip anyone off, but it’s just mission creep and inefficiency,” he said.
Seeking help
Giles Payne, director at professional trustee company HR Trustees, said many trustee boards are recognising the limits of their expertise and are bringing in specialised help.
“You see that coming through fiduciary management,” he said. “More emphasis on picking investments is being passed back to the investment managers.”
However, he added that bad decisions require further advice in order to put them right.
“There is scope for getting it wrong. We’ve seen situations where inappropriate advisers have been put in place and even less appropriate investments, and we have to pick up the pieces.”
Peter Askins, director at professional trustee company ITS, said the idea that certain advisers would seek to rip off schemes were likely “exaggerated”, but added that large consulting firms come with large overheads, and trustees should be willing to pay the price if they want a big name on board.
“It’s about people having the right level of advice,” he said. “If you’re dealing with a worldwide consultancy, they will have proportional overheads.”
Askins added: “People who were trustees 20 years ago would not recognise the landscape now. People don’t know what they don’t know.”
