Lloyds Banking Group drives efficiency with single trustee board

In an update for scheme members, the company announced that it put the new governance structure in place at the end of March this year, following proposals made in the third quarter of 2015. 

Before the change, the £16.4bn Lloyds Bank Pension Scheme No. 1, the £7.1bn Lloyds Bank Pension Scheme No. 2 and the circa £10.6bn HBOS Final Salary Pension Scheme were run by three trustee companies.

The use of a single board will mean that the culture and style of management will be the same for the three schemes and trustees will have full understanding of issues affecting the three schemes

Tim Middleton, PMI

The new board, Lloyds Banking Group Pensions Trustees, is made up of nine trustee directors and has now assumed its responsibilities. 

It includes Sally Bridgeland, who was previously a trustee director of the No. 1 and No. 2 schemes, and Mark Ashworth, who also represents Law Debenture as an independent trustee director. 

The update states that the three schemes have not been merged and “continue to be legally separate pension schemes, but now with a single trustee company and board”. 

A Lloyds Banking Group spokesperson said: “The changes are in line with industry best practice and reflect the group’s commitment to provide competitive pensions for our staff.”

The spokesperson added that the restructure will not affect members’ benefits. 

Joining forces

Bringing trustee boards together for companies with multiple schemes as employers continue to seek strengthened and more effective relationships with their pension funds can bring certain benefits.

Barry Parr, co-chair of the Association of Member Nominated Trustees, said it is “very understandable that the employer should want to consolidate and bring efficiencies”. 

Barry Mack, client director at governance consultancy Muse Advisory said that merging trustee boards is “potentially one way of getting economies of scale, sharing knowledge and ideas, good practice, advisers and providers, and indeed trustee support if, for example, a full merger of the pension schemes is not possible or too expensive... provided that potential conflicts between the schemes are managed appropriately”.

“We have seen examples of where this has worked well,” he added.

Similarly, Tim Middleton, technical consultant at the Pensions Management Institute, said that using a single board “will ensure that key relationships – including that with the scheme sponsor – are managed effectively”. 

Middleton added that the key advantage of this kind of governance restructuring is consistency in the stewardship of the three schemes. 

“The use of a single board will mean that the culture and style of management will be the same for the three schemes, and trustees will have full understanding of issues affecting the three schemes.” 

Conflict of interests

Richard Butcher, managing director at professional trustee company PTL, agreed that it is “a much more efficient process to have one trustee board sitting across a number of schemes”.

However, there are possible disadvantages to putting a new single trustee board in place. Conflicts of interest can arise on one trustee board overseeing multiple schemes, and this is something that “trustees need to be mindful of and manage appropriately”, he said. 

Butcher said: “The real prize in this sort of activity is that you can fully merge schemes… once you’ve fully merged schemes then you get the genuine economy of scale.”

But schemes must be in the “right place” in terms of funding to gain true economies of scale, he added.