350 professional trustees oversee £400bn of pension scheme money

There are around 350 professional trustees looking after a total of £400bn in pension scheme money, analysis from LCP has found.

LCP’s Sole mates or soul mates: Professional Corporate Sole Trustees (PCST) and their sponsors report, which analysed 13 professional trustee companies, found that the majority of assets are concentrated across three of the major professional trustee firms.

It also highlighted the rise of PCSTs, with one in three schemes with a professional trustee now under a PCST arrangement.

Nearly half (44 per cent) of the UK’s defined benefit (DB) and defined contribution (DC) schemes have a professional trustee.

LCP noted that, although historically schemes of £100m and below tended to have a higher proportion of PCST arrangements, there is a “growing trend” for schemes of £1bn and above replacing their trustee boards with PCSTs.

The higher demand for PCSTs among larger schemes and schemes with overseas parents was being driven by the need for simpler governance and cost savings, according to the report.

Demand for individual independent trustees amongst DB schemes was increasing at a slower rate, the report stated, with 5 per cent of UK DB schemes having an individual independent trustee compared to 4 per cent five years ago.

Despite the increased demand for PCSTs, there was “little demand” for fiduciary management solutions within a PCST model.

“To many pension scheme sponsors it may seem a no-brainer not to move to a PCST model,” commented LCP partner, head of strategic pension relationships, Nathalie Sims. 

“Dealing with one firm represented by one or two people seems far more straightforward than having to discuss projects with the entire trustee board. This is especially true for schemes that are trying to run large projects during tight timeframes, such as GMP equalisations, manage buy-ins or buyouts.  
 
“PCSTs are however not suitable for every pension scheme. The model can sometimes highlight conflicts, especially if the change happens around tense valuation negotiations. The key is to ensure there remains independence and diversity of thought once appointed and that the transition is done carefully to prevent loss of scheme knowledge.”

LCP principal, Laura Amin, added: “Making what in hindsight could be proved to be the ’wrong’ decisions will quite literally in some cases be criminal under the new Pension Schemes Act. 

“The new TPR powers will also add another dimension to real and perceived conflicts of interest, particularly for trustees who also have key senior roles in the business.

“We anticipate both of these factors will lead many more schemes to seek to appoint an independent professional trustee or PSCT services.” 

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