Conflicts of interest still exist for the majority of FTSE 100 final salary pension schemes because they have not appointed an independent chairman to their board of trustees, according to research from Trustee GAAPS.

The trustees search and selection firm has found that only 33 per cent of the pension trustee boards it recently questioned are chaired by a trustee who is independent of the fund's sponsoring employer.

Of the two thirds who have failed to appoint an independent trustee, 50 per cent are directors or senior managers of the company that funds the scheme, and the other half are former directors or senior managers of the sponsoring company. This, Trustee GAAPS says, fails the definition of "independence".

The concern is that a company director has the legal obligation to act in the best interests of shareholder, which could mean keeping company pension contributions to a minimum. A trustee's duty is to protect scheme members, which may result in negotiations to increase funding from the employer. When a director becomes a trustee, conflicts of interest may understandably arise.

"It would be better if a higher percentage of all pension scheme trustees were independent of the employer but at a bare minimum the Chairman of the board of trustees should be independent," commented David Johnson, consulting director of Trustee GAAPS. "A lot of decisions about funding pension schemes can be a zero sum game, which outs a Director in the impossible position of trying to choose between shareholders and scheme members."
The firm added that struggles with funding could put more pressure on pension schemes, making these conflicts of interest 'more acute and unmanageable'.

Johnson added: "The directors of more progressive companies realise that they can argue the company's case more freely to the pension fund if they aren't weighed down by conflicts.

"To be honest FTSE 100 pension schemes usually have the best pension governance standards - the smaller the employer the less likely they are to have independent trustees."
He said the appointment of a professional independent trustee should improve a scheme's performance, and the expertise they provide would bring cost savings on advisers' and fund managers' services.

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