Communicating complicated legislative changes, focusing on defined contribution governance and protecting members’ benefits are just a few of the challenges faced by trustee boards.
Speaking at an Association of Member Nominated Trustees conference this week, Lee Hollingworth, partner and head of DC consulting at Hymans Robertson, called for more defined contribution members on trustee boards.
DB still dominates the agenda
Trust-based DC schemes are operated in-house by a company and have a trustee board that plays a similar role to a defined benefit trustee board, but "some employers are becoming disillusioned with the trustee model and how it works for them", said Hollingworth.
There’s absolutely no reason why there can’t be a good flowing dialogue between the trustee group and the sponsor
Lee Hollingworth, Hymans Robertson
He explained that employers are torn between improving and embracing DC, or abandoning the idea of a standalone trust-based scheme and opting to transition to a mastertrust or contract-based arrangement, for example.
“I’m a big fan of trust-based schemes and I think they have the potential to deliver the best outcomes for members,” he said.
However, he noted that there are some poorly run trust-based DC schemes, mainly due to “a lack of time” to talk about DC matters when DB still dominates the agenda.
He said the other critical issue is the lack of DC members on trustee boards. “There are problems, in terms of people volunteering… to be a trustee,” said Hollingworth. However, he added that younger people can be actively encouraged and offered training to become trustees.
Hollingworth said DC trustees should be “developing a really deep understanding” of their membership and what decisions they are likely to make at retirement.
Communicate with the sponsor
Engagement and communication between trustees and the sponsor are also paramount for a successful trust-based scheme, said Hollingworth.
“There’s absolutely no reason why there can’t be a good flowing dialogue between the trustee group and the sponsor,” he said.
Communication is also a crucial consideration when it comes to engaging younger people, said Malcolm McLean, senior consultant at Barnett Waddingham.
Member-nominated trustees
According to Capita's Member-Nominated Trustees Report 2016, 18 per cent of MNTs recognised the importance of pension qualifications in helping them to become more assertive within trustee board meetings.
13 per cent felt behavioural rather than technical courses would help them carry out their roles better.
31 per cent of MNTs simply wanted more time to understand the key issues facing schemes.
He said that “it is quite a challenge to actually simplify pensions” and that the use of pensions jargon “needs sorting out” to make it clearer to members.
With regard to confusion around information, guidance and advice, McLean said that advice involves someone being told “not just what they could do, but what they should do”, and this should be given only by a regulated financial adviser.
However, he said: “That doesn’t mean to say that trustees and advisers couldn’t do more in the area of information and guidance.”
'Milking and dumping'
Member communication and engagement is only one of many concerns for trustees. Widespread national news coverage of recent pension scandals like the collapse of BHS has put trustees and their advisers under an increased amount of scrutiny when it comes to protecting members’ benefits.
In defence of lay trustees
From the blog: The Pensions Regulator has found that professional-only trustee boards are better run. That’s not all that surprising. However, non-professionals have lots to bring to trustee boards and their value should not be underestimated.
Keith Wallace, president of the Association of Corporate Trustees and chair of the legal advice panel of the Pensions Advisory Service, warned trustees about “how easy it is…for the proprietors of business to dump their pension liabilities”.
Wallace, the author of a paper detailing how employers “milk and dump” their pension schemes, said that it is MNTs who are the sole, unconflicted source of protection for the beneficiaries of DB pension funds.
