Pension scheme trustees are coming under increasing scrutiny from employers and must place more emphasis on governance, according to Barnett Waddingham senior investment consultant, Pete Smith.

Speaking at the firm’s annual conference yesterday (25 January 2018), Smith said that he has witnessed numerous occasions where employers have lost confidence in the trustee group, because of a change in management or a breakdown in communication.

In addition, trustees must think about the different ways they can improve the governance structure of their scheme, particularly around investment issues.

Smith said: "I have seen a number of cases after an employer has lost confidence in the trustee group, partly through changing management teams and partly through communication issues. Sometimes trustees and employers have a slightly dysfunctional relationship.

“We are seeing more emphasis from trustee groups on the extent they should be discussing matters with their employer and the scheme sponsor.”

The comments have extra resonance in light of the Carillion disaster, in which the conduct of pension scheme trustees has been raised after the firm faced numerous profit warnings.

Earlier this month, Work and Pensions Committee chair, Frank Field, sent questions to Carillion defined benefit trustee chair, Robin Ellison, asking him to explain the firm’s investment and de-risking approach in light of its profit warnings.

Ashurst counsel, John Gordon, said: “There are questions about how proactive trustees need to be now. All trustees are going to want to keep a big paper trail of how they have responded to various corporate actions.

“Trustees are aware of this, but increasing pressure from parliament and the regulator means they are going to have to be more proactive in the future.

“There is a more cautious mood that trustees now have with their sponsor and they will ensure that they have a good line of communication which enables them to evaluate the effect of any corporate event or action on the scheme.”

Smith agrees and said that trustees must ask themselves what they want their legacy to be, what their role is in the management of the scheme, and how can they demonstrate the key decisions they made.

“Almost universally within trustee groups I am seeing much more discussion from an investment perspective with the employer involved, because fundamentally, in most cases they are the pensions scheme's biggest asset”, Smith said.

In addition, trustees must ask themselves if they are comfortable to make certain decisions, and if not, why not.

“If you feel, as trustees, that the scheme is difficult to operate effectively, the first step I would take in improving the governance is to set up an investment sub-committee. A group of trustees who are more comfortable making decisions around investments.

“It then comes down to the practicalities of your decision making, the who, the what, the how, the aims and the beliefs”, Smith said.

Share Story: