Robert Smith raised his fears during the Work and Pensions Committee.
Sole trusteeships erase member input and transparency from pension schemes, an industry figure has warned.
Robert Smith, member of council for Royal Ordnance Pensioners Association, raised concerns that sole trusteeships, which remove the requirement for a member-nominated trustee, also remove all member input.
Speaking at the Work and Pensions Committee recently, he said: “The number of schemes being put into sole trusteeships is growing and is growing quite rapidly. It is about 14 per cent of DB population now. And that could get to 28 to 30 per cent within five years.
“The key issue for us for a sole trusteeship is that it does away with the requirement for member-nominated trustees and it removes all member input, member visibility and member transparency for the scheme and arguably reduces the diversity of decision making.”
His comments have been backed by industry experts including Janice Turner, co-chair of the Association of Member Nominated Trustees (AMNT).
She said: “It’s hard to see that, even with the best sole trustee in place, members' interests will be as well protected - their views are no longer around the board table. If you then add to this the possibility that with the increasing concentration of firms, sole trustees are at greater risk of groupthink, then we can envisage a weakening of members’ interest and protection.
“It is also a concern that scheme sponsors with a strong trustee board might believe that moving to sole trusteeship would result in a more compliant relationship. We are concerned that some trustees have alleged that they have been pressured to resign in order for the sponsor to move to sole trusteeship.”
Interestingly, Maggie Rodger, co-chair of the AMNT, said it has no problem with the concept of professional trustees appointed as sole trustees, providing they have the backing of a trustee company so it is not just a one person process, because this maintains some limited diversity. But the AMNT does have serious concerns about the process when an employer or sponsor wishes to change from having a trustee board to a sole trustee.
She added: “One reason for this is that while scheme rules differ, it seems that some employers or sponsors can dismiss their trustee board and appoint a sole trustee without any consultation process, so members have no voice here.”
She highlighted a recent case of Norton Motorcycles, where an individual appointed himself sole trustee and then invested the pension fund in the company, which failed.
She said: “It is amazing that regulation did not prevent this.
“Additionally, there is a concern that even well-regulated sole trustees can be appointed and an existing board dismissed without member consultation - thus removing their voice from the governance.
“Given these concerns, the AMNT is calling for - and would very much support - regulation which addresses these issues.”
The debate coincides with news that ZEDRA appointed Clare James as head of its sole trustee services.
James said ZEDRA carefully selects client directors, managers and administrators from a wide range of backgrounds across its sole trustee engagements to ensure diversity.
She added sole trustees try to meet regularly with scheme member representatives who are able to communicate any member concerns and provide feedback.
She added: “When we transition to a sole trustee model, the valuable input from member nominated trustees and pension scheme members need not cease. Where there are members who are engaged and willing to offer their time, we have successfully established consultative committees where we, as the sole trustee, meet regularly with scheme member representatives who are able to communicate any member concerns and provide valuable feedback on areas such as member communications.”
