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The evolution of trusteeship

‘A look ahead to 2023’ download our full report below

Pension scheme trustee boards have never had such a tough job to do. Increasing demands are coming from all directions; whether that be from regulatory scrutiny, enhanced ESG reporting, volatile investment markets or, as the economic environment becomes more challenging, from covenant risk.

The range of skills and the breadth of expertise that requires mustering is vast. Having the right governance structure in place for the scheme is imperative. It is no surprise that many schemes are choosing to adopt sole trustee models to shore up their governance approach. Similarly, schemes are increasingly choosing to engage with fiduciary managers to ensure that the requisite degree of professionalism and expertise is deployed in the co-ordination of; journey planning, strategy setting, risk management and investment decision making.

Although this model won’t be right for everyone, the marriage of sole trusteeship and fiduciary management can bring benefits to many schemes.

There are reasons to believe that
the sole trusteeship and fiduciary
management model will become more
prevalent in the time ahead.

Gillie Tomlinson, Head of Trustee Engagement

A good example of how the combination of sole trusteeship and fiduciary management paid dividends is to be found in the experience of schemes with this model during September’s gilt market crisis. We found that schemes with sole trustees were able to; keep on top of the rapidly evolving situation more easily, benefit from more streamlined decision making processes and,
as a result, make better informed choices, than those that relied upon more traditional governance models. As a result, schemes with sole trustees and fiduciary management generally fared better than otherwise would have been the case during a period of great
uncertainty for the pension fund industry.

Because of the evolution of the industry there are reasons to believe that the sole trusteeship and fiduciary management model will become more prevalent in the time ahead:

  • With the majority of defined benefit schemes now closed, increasingly fewer members will be closely associated with the scheme’s sponsor. Recruiting and retaining member trustees, with the requisite commitment and talent, will become more difficult. The breadth and diversity of trustee boards can be expected to suffer.
  • As regulatory risks heighten, sponsors can be expected to demand higher levels of professionalism and, of course, accountability from their scheme’s trustees. Alongside this expectation from sponsors, mandatory accreditation of professional trustees and direct regulation of professional trustee firms, would seem to be appropriate.
  • The structure of the pensions industry will continue to change. As the defined benefit market winds down, the defined contribution market will further grow. Schemes will increasingly have to support a widening range of disparate member profiles. Whether they be in; accrual, deferral or drawdown, and whether they be defined benefit or defined contribution beneficiaries, schemes will need to balance all members’ interests.

But, of course, there is one thing that will stay the same. Irrespective of the approach that schemes adopt they will be challenged by their stakeholders to deliver secure futures for their members in a cost-effective manner. Here too, we see advantages in the sole trusteeship
and fiduciary management model; economies of scale can be delivered and operational efficiency improved, alongside the delivery of a robust governance model.

A look ahead to 2023

A year of reflection, consolidation and strategies.

A look ahead to 2023

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