How to take a proactive approach to decision-making

Brian Kilpatrick, a trustee director at Law Debenture, explains how trustees can put together proactive decision-making frameworks to ensure good governance.

Action points

Make sure your scheme governance framework is fit for purpose
Put in place a team with the required skills and experience
Seek quality advice from experts to support the team's understanding

How the trustee organises its board and committee structure will be specific to its own particular needs and ways of working, but there are a number of generic principles that will help trustees be proactive decision-makers.

It is important to make sure there is a clearly agreed trustee strategic mission statement. This should detail the scheme’s objectives across funding, investment, member administration, communication and risk management to make clear the trustee’s objectives and how they should be met.

Decision-making is complex, but getting the right governance framework in place will help drive outcomes

The statement should also be supported by more detailed risk management planning documents such as an annual business plan and risk register.

Furthermore, there should be a trustee organisational structure at board and committee level. The roles and terms of reference should be clearly defined and appropriate delegations in place to ensure decisions can be made at the appropriate level.

The appointment of experienced trustees acting as chairpersons is important. Each committee and the board require experienced professionals who can manage the advisers and the meetings to drive good outcomes and facilitate the groups progress to reaching informed decisions.

There should also be sufficient resource in place. This relates to both experienced individuals and budget for advisers who can support the trustee and maintain momentum with projects and general scheme business between meetings.

Clarity of their role and the extent of any delegations in place that facilitate ongoing management of scheme business is also required at this level.

Trustees should make sure there is a conflict of interest policy. All stakeholders should be aware of the process to properly manage conflicts where they cannot be avoided.

A trustee evaluation framework is also needed, because it allows the trustee to critically assess its own performance.

Lastly, application of a framework for sponsor interaction is important. This should drive regular communication and feedback with the sponsor to ensure a healthy dialogue is maintained and the sponsor informed and consulted on key decisions.

Ensure good knowledge, experience and understanding

The trustee board should evaluate the skills it needs to manage the scheme efficiently and to a good level of governance and seek to recruit individuals from the membership and the sponsor with appropriate skill sets.

The trustee may need to consider appointing professional trustees to support the board if it cannot secure the appropriate skill set mix internally.

Trustees must receive adequate training to build knowledge in the many specialisms across the pensions landscape. Pensions is a very technical area that is subject to a material amount of legal and regulatory oversight.

The trustee should ensure it receives strategic management information on a frequent basis to ensure it can monitor the scheme’s progress against the strategic plan.

This should be the 'flight dashboard' that helps the trustee assess whether the scheme is on course or not. Trustees are not expected to be subject experts, that is the role of advisers and asset managers.

However, better informed, experienced and well-organised trustees are more able to challenge advisers where necessary and typically make better decisions.

Trustees should have a clear understanding of their powers under the trust deed and rules, which defines what they can and cannot do. They should seek legal advice where they believe there may be ambiguities regarding how the rules should be interpreted.

The Pensions Regulator's code and guidance on trustee knowledge and understanding is a good place to start.