AMNT flags governance concerns with sole trustee model

It follows the publication of research from LCP showing that 24% of pension schemes now use a sole trustee approach, whereby a professional trustee firm is appointed to act in place of a board of trustees.

Maggie Rodger, co-chair of the AMNT, said: “AMNT is concerned by the lack of governance of the sole trustee model for pension schemes, which was once a rarity. However, this is becoming increasingly common, but with almost no regulation of the appointment process or appointees.”

She called for the Department for Work and Pensions to “improve the accountability of sole trustees”. She also argued that sole trustee appointments should be the responsibility of the trustee board they are replacing, or at least involve consultation with members.

“Additionally, while creating a register of trustees, the regulator should work with the industry to create a higher bar of training and experience for sole trusteeship as well as a fit and proper person test,” Rodger said.

Professional trustee market growing rapidly

LCP’s Sole Mates report, which studied professional trustee appointments across the UK pensions sector, found that more than half of schemes (51%) had at least one professional trustee on the board. This marked the first time this figure had exceeded 50%.

The proportion of schemes with a sole trustee jumped from 18% in last year’s study to 24% this year, LCP reported. Schemes with sole trustees ranged from those with less than £10m in assets to multi-billion-pound schemes.

The AMNT said it supported the growth of the professional trustee sector but cautioned that the regulatory framework must be updated in order to ensure proper oversight and protection for members.

It highlighted that, on average, 30% of professional trustees and 40% of sole trustees do not have to face a tender process, according to the LCP report.

The AMNT also queried whether sole trustees were able to manage conflicts of interests, such as being able to hold to account administrators or investment consultants if these services were provided by the sole trustee’s own company.

Rules lagging market growth

The AMNT also warned that there were no meaningful safeguards over who can be appointed as a sole trustee. While these tend to be professional firms, there is currently no legal requirement for this.

Rodger added: “The professional trustees I meet are clearly concerned to act fairly and expediently to provide good sole trusteeship for their schemes.

“The problems – and my concerns – are not about them as such. I have heard them expressing some of these concerns too, and the increasing industry focus on the issue will hopefully help to find some answers.”

While sole trusteeship was a potential solution for schemes that were struggling to find member-nominated trustees, Rodger argued that there were other ways for boards to access the required expertise. These included different forms of outsourcing and employing a professional trustee to support a desired outcome such as buyout.

“Government and the regulator will need to think deeply about how they want the market to develop and what protections need to be put in place to ensure members are not disadvantaged or put at greater risk,” Rodger added.

Professional trustee regulation

Harus Rai, chair of the Association of Professional Pension Trustees (APPT), said the organisation had introduced a code of practice for sole trustees in 2020, which its members should adhere to.

“The code provides transparency and guiding principles for professional trustee firms on our expectations of the governance needed to act in a [sole trustee] capacity and is subject to regular review,” he explained.

The Pensions Regulator (TPR) has previously stated that professional trustees will be subject to greater scrutiny given that they are “systemically important” to the UK pension system.

It is building a registry of professional trustees with a view to increasing its oversight of these appointments.

David Fairs, partner at LCP and a former executive director at TPR, said the regulator was likely encourage professional trustees, through the APPT, to “review the accreditation standards to make sure that they remain appropriate to the changing market and ensure that the standards continue to maintain a high level of governance and oversight of member benefits”.

Further reading

Professional and sole trustees dominate scheme management, data shows (24 September 2024)

Professional trustee firms on hiring spree as demand surges (20 June 2024)

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