Skip to main content
Article | Pensions Briefing

The pension trustee effectiveness conundrum

Pension Board and Trustee Consulting|Pensions Corporate Consulting|Pensions Risk Solutions|Pensions Technology
N/A

By Adam Boyes | October 29, 2020

Pension trustees have embraced new ways of working in 2020 and generally feel they have been effective. As we look ahead to 2021, we reflect on some of the opportunities the “new normal” presents with an eye on what challenges lie ahead for trustees.

As the UK entered ‘lockdown’ in late March, trustees had two immediate challenges: ensure that vital member processes could continue and, where necessary, play their part in alleviating cashflow pressures on stressed sponsoring employers. As it became evident that the pandemic’s disruption was not fleeting, trustees became keen for business to resume, if not “as usual” at least “as far as possible”, and with an appetite to tackle projects that might otherwise have been thought shelved until normality returned.

Pension schemes have had to embrace new ways of working, both for day-to-day administrative tasks and for strategic oversight and decision-making.

Administrators will have differed in how well they rose to the challenge of working outside the office and how quickly they equipped staff with the tools needed, but most respondents to our Emerging Trends in Defined Benefit Pensions survey indicated that their administration had held up well. For example, while one in three reported an uptick in retirements during the pandemic, only 14% said it was taking longer to put pensions into payment.

For pension trustees, as for so many others, 2020 has been the year when video conferencing, hitherto a novelty, became a tool which they had no choice but to embrace. Perhaps reflecting the perceived strengths and weaknesses of meeting virtually, two-fifths of respondents to our survey reported an increased meeting frequency and half reported that meetings were shorter. One in five reported that decisions are now being reached more quickly.

At this stage, conclusions about how effective discussions over a webcam have been may only be provisional, but around three quarters of respondents thought going virtual had made little difference to the trustee board’s overall effectiveness. Of the remainder, more than three times as many believe that board effectiveness has improved as think it has deteriorated.

However, not everything is positive. Respondents are more likely to report an adverse effect than an improvement when it comes to discussions between trustees and external advisers and discussions between trustees themselves (though, again, most report that the effectiveness of these discussions has got neither better nor worse). Four times as many said discussions between trustees had become less effective than reported them to have improved.

It is understandable that there is likely to be a casualty of shorter meetings. There is a danger that the shortening of meetings could be a barrier to the members of a trustee board gaining a full understanding of each other’s diverse perspectives and of the advice they are receiving – leaving less time and capacity for appropriate challenge and debate. Furthermore, encouraging advisors to distil advice down to executive summaries of detailed advice increases the risk that boards gain only a superficial understanding. Trustees also see nothing of each other before clicking “join” or after clicking “leave”. Virtual meetings therefore lose what the Bank of England’s chief economist recently called “those informal between-meetings conversations [which] are…the bedrock of relationship-building and the key to trust-building”.

…two-fifths of respondents reported an increased meeting frequency and half reported that meetings were shorter.”

Adam Boyes
Head of Trustee Consulting

Over the next year, GMP equalisation is the issue most likely to be cited as the top priority by trustees and sponsors of defined benefit pension schemes. For those that haven’t yet started to grasp the nettle, it is an area fraught with technical and legal complexity. Looking further ahead, the top issues over the next three years also include journey planning and insurance transactions (e.g. buy-in, buyout and longevity swaps). These are all significant steps for trustees to take and the detail is important. Funding valuations over the next few years are also likely to be more challenging for a large proportion of schemes because of either circumstance or the upcoming regulatory changes.

Trustees should consider how they will handle such major, complex projects and the associated decisions in the new environment. In doing so, some of the following points may be worth reflecting on:

  • Chairing of meetings is so important to ensure the engagement and contribution of all relevant participants. Many chairs are experienced at this, although online meetings and the lack of physical presence makes it all the more important that this is done overtly. Chairs should seek feedback from their board and consider going “round the room” to ensure that they get everyone’s input.
  • Challenging the status quo and traditional ways of operating – were there items routinely on the meeting agenda that, with a fresh perspective, could be handled just as effectively in a different way (e.g. items that don’t need debate and could be circulated outside of meetings)?
  • Can technology provide a more up-to-date and interactive experience, such as having the actuary share their screen to present and interrogate the latest estimated funding position (e.g. using Asset Liability Suite) rather than rely on material incorporated in the board pack or based on a historic quarter end that may be months out of date by the time of the meeting?
  • Where meetings are being compressed, would it be better for some topics to be dealt with during special single-topic meetings rather than as part of a full agenda of other business (and being careful not to overly constrain the time on single-topic meetings so that there is opportunity for gaining a full understanding and having debate and challenge)?
  • Does the trustee board contain the right mix of skills and experiences or should there be consideration of appointing an independent professional trustee? Respondents who worked with professional trustees believed they had enhanced effective decision making (71%) as well as the board’s knowledge of market practice (89%). The Pensions Regulator recently consulted on whether it should in due course be mandatory for all schemes to have a professional trustee. It does not believe this is currently feasible but has says it “may well revisit this idea in the future”.
  • Should working parties be more commonly established where there is a flow of greater detail and a need for a higher frequency of meetings (e.g. GMP equalisation, buy-in transactions)?
  • What approach is being used for (storing and) sharing information around the trustee board? Our OnePlace service can be used to collaborate during and outside of board meetings.

As the year draws to a close, trustees should reflect on their experiences of the rapid changes catalysed in 2020 and consider the benefits as well as any areas that their approaches are falling short. Meetings are likely to continue to be more commonly held by video conference either out of necessity or choice.

Contact

Adam Boyes
Head of Trustee Consulting

Related Capabilities

Contact Us