Appointing a pension scheme trustee – how to get it right - Guides - Gateley
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Appointing a pension scheme trustee – how to get it right

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If your company operates a defined benefit pension scheme there is a good chance it will be one of the biggest risks facing the company. However, the scheme itself will be managed by trustees who are required to act independently of the company.

This is an important protection for pension scheme members but it presents a challenge because one of your most significant risks is largely out of your control.

Appointing the right trustees, with the right skills and experience, is therefore one of the most important decisions that a company can make. In this guide, we set out a 4-step plan to help companies when appointing trustees.

Step 1: Take a step back – what does your scheme need?

Your chair of trustees has retired. Your experienced member-nominated trustee has resigned. Your finance director who acted as a trustee and reported back to the company’s board has left the business. What do you do? 

For many companies the answer is typically to find the next person in the business who will volunteer to become a trustee. Before doing this we would encourage you to take a step back and consider the position of your scheme more generally and how you see this changing in the next five or ten years. This will not take long but it will enable you to make a more informed decision and improve the way the scheme is run going forward.

For example:

  • Have the scheme’s circumstances changed since you last reviewed the trustee board? 
  • Is the current structure of the trustee board going to help the scheme get where it needs to be in the short, medium or long term? 
  • If there is a long term strategy in place for the scheme, will the remaining trustees be able to achieve this?
  • If there is no long term strategy in place, does this suggest that the trustee board needs better leadership?
  • How large is the trustee board? Many companies established large trustee boards when the scheme was a key part of the company’s remuneration package. If the scheme is now closed and represents a legacy liability, would a more streamlined trustee board be more appropriate?
  • Is there corporate activity planned which might result in sensitive discussions with trustees and mean that conflicts of interest will need to be managed?

Step 2: Review your existing trustees’ skills and experience

Once you have considered what your scheme needs and have developed some thoughts about the future of the scheme, consider how the skills and experience of the existing trustee board will help to achieve these objectives.

The outcome of this review will depend on the circumstances of each individual scheme but some common scenarios are:

  • If the scheme requires greater leadership and more strategic planning, should you appoint a new chair of trustees? Perhaps an experienced leader from within the business or a professional trustee?
  • If the outgoing trustee brought particular skills to the board will these still be available going forward? If not, should you consider appointing a new trustee with a similar background who can fill this gap?
  • If the scheme is moving into the later stages of its lifecycle, would it be appropriate to reduce the number of trustees and have a more streamlined trustee board?
  • If you have identified a need to increase engagement with the scheme’s membership, would it be appropriate to bring more member-nominated trustees onto the board?
  • If too much senior management time is being spent on the scheme would it be appropriate to appoint a professional trustee to manage the scheme and set up appropriate reporting structures with the company?
  • If potential conflicts of interest have been identified is the trustee board big enough that it will still be able to make decisions while these are being managed? If not, should independent trustees be brought in to assist?
  • If the trustees do not have the experience to scrutinise and challenge advisers effectively should more experienced employees from within the business or professional trustees be appointed to ensure that the scheme gets the best value?

Step 3: Check your trust deed

The most important document when making any decision in respect of your pension scheme is your trust deed. Most trust deeds will allow the scheme's principal employer to appoint and remove trustees but you should check to ensure this is the case.

If you do have the power to appoint and remove trustees then before making any changes you should consider:

  • Are there any procedural requirements? Typically it will be necessary to make appointments by deed.
  • Is there a minimum or maximum number of trustees?
  • Are you complying with the member-nominated trustee (“MNT”) laws? Generally, one-third of a scheme's trustees must be chosen by the scheme's members so you should be aware that any proposed changes might affect this balance. The most common exception to the MNT requirement is if you have a sole independent trustee, in which case your scheme will be exempt from the MNT laws.

Step 4: Decide who to appoint

Once you have been through the process above you should have an idea of:

•    how you see your scheme developing in the next few years;
•    what additional skills and experience are required in order to ensure the scheme meets its objectives; and
•    what legal issues will affect the appointment of new trustees.

Taking all of this into account, you should be in a much better position to identify any changes that should be made and the candidates who would be best placed to enhance your trustee board in the future.

If you’re looking for a leading independent professional trustee to help you run your pension scheme effectively, please contact one of our experts.

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