‘Majority’ of schemes have professional trustees, research shows

The consultancy polled 152 DB schemes and found that 57% had appointed a professional trustee – a figure Aon expects to increase in the future.

Separate research published earlier this by Hymans Robertson reported that 68% of corporate DB sponsors said it was likely that they would increase their use of professional trustees in the future.

The increased governance burden on schemes, including the requirements of the Pensions Regulator’s (TPR) new General Code, was likely behind the increasing number of professional appointments, Aon said.

Even schemes that are preparing for an insurance transaction may benefit from the “additional experience” of a professional trustee, according to James Patten, partner at Aon.

“A professional trustee won’t be appropriate for all schemes – many of which will already have highly experienced trustees on the board – but with the increased focus from employers on endgame planning, we expect the proportion of schemes with a professional trustee to continue to grow,” Patten said.

“Where employers are looking to settle their pension risk through an insured transaction, the additional experience of the process that a professional trustee can offer, in addition to that of a specialist adviser, is likely to be attractive.

“That knowledge may also enhance credibility with insurers as the scheme approaches the insurance market. For schemes that are instead looking to run on, there will be new and complex decisions to make, and, in that case, a professional trustee is likely to be valuable in reaching quick and robust decisions.”

The findings come as TPR is preparing to engage more closely with professional trustee firms. In its latest corporate plan, the regulator said such companies had become “systemically important” to the pensions industry.

TPR intends to increase its focus on “increase our focus on new and increasingly significant professional trustee entities” through the development of a dedicated oversight framework for the sector.

The rise of the sole trustee model

Aon also predicted that an increasing number of professional trustee appointments were likely to be on a sole trustee basis.

Patten said that, while his firm’s research had so far shown that most schemes using the sole trustee model (87%) had less than £250m in assets, larger schemes may begin to adopt the model in the future.

He urged sponsors and trustee boards to “work collaboratively to consider how their needs may have altered as their circumstances have changed”.

Patten continued: “They also need to review the pros and cons of different trustee structures, how the current governance structure aligns with these requirements, and then how any changes can be made.

“This doesn’t always mean a professional trustee or a sole trustee solution is the right answer. It often depends on the skills and diversity of the existing trustee board, the history of the scheme and the nature of the relationship that the trustee board may have with members.”

According to Hymans Robertson, a third of professional trustee appointments were on a sole trustee basis in the 12 months to the end of March 2023 – and this could double in the next five years. Schemes with a sole trustee model accounted for 25-30% of the pension risk transfer market in the same period.

Further reading

TPR to scrutinise ‘systemically important’ professional trustee firms (3 May 2024)

Sole trusteeships ‘remove member input and transparency’ (27 November 2023)

At least 50% of schemes have a professional trustee (12 September 2023)