What makes a good trustee?

The Pensions Regulator’s recent consultation on '21 century trusteeship and governance' closes for responses on September 9.

In referencing the 21st century, the regulator suggests that the challenges faced by trustees now are hugely different to those in the past century.

It is essential that we have the ability to challenge advice. A good trustee will not just blindly follow their satnav up a one-way street

That is indeed the case with substantial deficits, complex investment instruments and integrated risk management among many challenges that would be alien to the 20 century trustee. We need trustees who are able to meet those challenges.

Knowledge and understanding of your specific scheme and the general pensions landscape is an obvious requirement.

Theory and practice

As a minimum trustees should complete the regulator's trustee toolkit, which is akin to sitting a driver’s theory test. The toolkit can be supplemented by the many free training courses offered by industry bodies and advisory firms.

What about the practical driving test? While there is no need to understand everything that is going on under the bonnet, trustees need to know enough to drive the car proficiently and question any unexplained rattling sounds.

While it does not hurt to have a particular area of expertise, advisers are there to look at the detail. What trustees need, therefore, is a solid all-round grasp of the key technical issues facing schemes, including funding, investment, communication, etc.

However, if trustees are relying on their expert advisers to understand the nuts and bolts, it is essential that we have the ability to challenge their advice.

Are advisers clearly explaining the rationale behind their advice and being proactive in suggesting potential, and proportionate, solutions to specific issues? A good trustee will not just blindly follow their satnav up a one-way street.

There are no silly questions

Non-technical skills are also essential. There are often a range of backgrounds on the trustee board, from shop floor to senior management.

The ability to allow for different motivations and levels of knowledge, to draw views out, to ensure that all trustees understand the issues and to use this to underpin well-informed decisions requires a range of 'softer' listening and communication skills.

Being unafraid to contribute to the discussion is also important – there is no such thing as a silly question.

That said, we need more than good trustees in isolation; excellent individual trustees can still make for an ineffective board. For a trustee board to work well there is a need for diversity – a mix of skills and demographics.

This is particularly true for defined contribution schemes, where member outcomes are strongly dependent on governance. Member-nominated trustees can have an important role to play given their deep understanding of, and empathy with, the needs and preferences of the membership.

And finally conflicts. Hopefully none in the Hamilton/Rosberg league, but they are many in number and difficult to rule out completely.

Trustees need to consider whether they can conduct their roles effectively given the conflicts they face, and a robust conflicts policy will help trustees to manage contrasting views effectively and transparently.

In summary, the demands on the 21 century trustee go far beyond just staying awake at the wheel, let alone the additional expectations for the chair and professional trustees.

The challenge is how to maximise the chances of fulfilling that ideal. 

Janine Wood is client director at Independent Trustee Services