Trustee governance gap biggest risk for large pension schemes

Trustee governance gaps and reliance on key individuals is the highest risk for schemes with more than £10bn of assets, Squire Patton Boggs has revealed.

In its latest Protect Against Unmitigated Liabilities publication, the law firm found that although it was identified as the highest risk by all schemes with more than £10bn of assets, it was only ranked as the eighth most severe risk overall.

It noted that, although it is “almost inevitable” that trustees will rely on a key individual, “short term dependency should not lead to long-term vulnerability".

The ‘red risk flags’ identified in the report include schemes with trustees that follow the advice of adviser without question, schemes that have the same one or two people who take the lead in the decision-making and trustees that struggle to fill member-nominated trustee vacancies.

It also advised schemes to be wary of sponsoring companies that do not engage with the trustees when making appointments to the trustee board and trustees that do not have open discussions about learning needs.

To combat the risk posed by trustee governance gaps and overreliance on an individual, Squire Patton Boggs said succession plans should be formed “urgently” if the trustees would find it difficult to operate the scheme is any trustee or adviser resigned.

The publication also encouraged schemes to review the terms of reference and membership of sub-committees, and the member-nominated trustee procedure.

It advised: “Discuss the best ways of knowledge sharing. How do individual trustees learn, and what expertise is available within the trustee group, within the sponsoring employer or from advisers, to help to fill skills gaps or improve the team dynamic?”

The latest risk publication is part of Squire Patton Boggs’ survey into pensions risks that are not directly covered by the Integrated Risk Management Framework.

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