Lloyds Banking Group completes second trustee board merger

In 2016, the trustee boards for the Lloyds Bank Pension Scheme No. 1, Lloyds Bank Pension Scheme No. 2 and the HBOS Final Salary Pension Scheme were brought together to increase efficiency and strengthen the group’s relationship with the schemes.

It is important that there is appropriate representation for each of the schemes, especially on the member-nominated trustee front

Ruth Bamforth, Walker Morris

In November 2018, the company made a proposal to include the Scottish Widows Retirement Benefits Scheme’s trustee board in this arrangement.

It has since been agreed by both trustee boards, and according to an update to members, the transfer from Scottish Widows Pension Trustees Limited to Lloyds Banking Group Pensions Trustees Limited is now complete.

‘Substantial simplification’

The number of trustee directors on the Lloyds board has risen to 12 from nine - with three former Scottish Widows trustees having been appointed into the new roles.

“We are aware of the increasing demands and challenges faced by our scheme trustees and the Group has considered how best to support them, so that they can continue to be able to meet those demands and challenges,” reads the update.

It states that the 2016 trustee board merger has “delivered substantial simplification and significant efficiencies, and has resulted in a closer working relationship with the Group, at a senior stakeholder level”.

Bringing the SWRBS trustee board into this structure enables the scheme to derive similar benefits.

“In addition to benefiting members through simplification and streamlined decision-making, it will allow for more access to specialist investment and operational support teams in the Group,” it states.

Proper representation crucial

Ruth Bamforth, director at law firm Walker Morris, agrees that having one point of contact for the company across all schemes streamlines the flow of information from the company. It may also lead to cost savings.

However, the merged trustee must remember that it is the trustee of several schemes. “Whilst there may be synergy in approach, each scheme is unique even though it has the same employer. The merged trustee needs to make sure that it recognises the specific issues for each of the schemes,” she says.

Structuring the merged board is a potential challenge, according to Ms Bamforth.

“It is important that there is appropriate representation for each of the schemes, especially on the [member-nominated trustee] front,” she says.

Barry Mack, director at Muse Advisory, says that merging trustee boards is “potentially one way of getting economies of scale, sharing knowledge and ideas, good practice, advisers and providers”.

However, he also warns that “it is important that potential conflicts between the schemes are managed appropriately given that they could be calling upon the same sponsor covenant”.

Is your board too big?

While Lloyds’ merged trustee board has grown in its membership, in the wider industry boards are shrinking. According to PwC’s 2018 Trustee Pay Survey, the number of schemes with boards made up of more than 12 trustees is now just 8 per cent, compared to around 30 per cent in 2014.

“A board which is too large can result in slower and more cumbersome decision-making. It is therefore a delicate balance to ensure that each scheme (including MNTs) is properly represented and ensuring that the board is of a suitable size to ensure good decision-making,” Ms Bamforth notes.

The three former SWPTL trustee directors joining LBGPTL has increased the board’s size, but transferring them over will provide “continuity, experience and understanding of the SWRBS to the board”, according to the Lloyds Banking Group update.