Should pro trustees on scheme boards be mandatory?

In November last year the European Commission removed a contentious requirement for each individual trustee to have a 'professional' qualification, with an aim to raise governance standards across the board.

But the pensions industry is on standby for further detail on the form and content of the directive, and despite this removal the anticipated ramp-up in governance requirements could lead to the presence of professional trustees on scheme boards effectively becoming mandatory.

This has sparked some debate across the industry.

Karen Kendall, partner at consultancy Quantum Advisory, stressed the long-term benefits for schemes and employer sponsors.

“I think it’s probably a little way down the line, but certainly it would tick the best-practice box,” she said.

I’d prefer people to choose to appoint because they think it’s a good thing; although it's against my interests, I would rather people were willing and not compelled

Mark Ashworth, Law Debenture

Kendall said the inclusion of an independent trustee on boards would help schemes and employers overcome difficulties in a number of tricky areas.

“One is funding and negotiations and actually understanding the real impact of what they’re doing,” she said.

“I think the world of investment has also become increasingly more complex and important for trustees,” said Kendall, adding: “The experience and knowledge of independent trustees can certainly help in reaching decisions.”

However, Kendall added the industry would “balk” at the suggestion of compulsion.

Number of MNTs down

Barry Parr, co-chair at the Association of Member Nominated Trustees, said there was no evidence of a move towards compulsion but noted there had been a shift in the composition of trustee boards, with an increasing number of employers reducing the number of member-nominated trustees. 

“Because of conflicts of interest employers are beginning to reduce the number of employee-nominated trustees on a board,” said Parr.

“It’s not unusual for employers to go for an independent chairman but I would be surprised to see compulsion in that,” he said.

Parr added there is a huge range in the quality and experience of independent trustees, and that schemes should prioritise procedural experience when considering an appointment.

“If trustee boards are encountering something for the first time… it is not unusual that the independent has experience from other [schemes],” said Parr. “That can be very helpful – I think that’s where [independent trustees] excel.”

Unintended consequences

Mark Ashworth, chair of pension trusteeship at investment advisory Law Debenture, predicted a move towards compulsion might give rise to unintended consequences.

“I think you’d need to be careful of such a change,” he said.

“I’d prefer people to choose to appoint because they think it’s a good thing; although it's against my interests, I would rather people were willing and not compelled."

Ashworth also questioned how professional trustees in the UK would cope with a sharp rise in demand for their services. 

“Where would these people come from and would they be of the right quality?” he said.