What is sole trusteeship and why is it becoming more popular?
A better term is Professional Corporate Sole Trusteeship (PCST), as that reflects most models of ‘sole trusteeship’. This is where a professional trustee company becomes the sole trustee of a pension scheme. There will usually be a main trustee director who ‘leads’ the appointment who will be supported by others.1
PCST is becoming increasingly popular:
- There are practical considerations like difficulty filling vacancies for Member-Nominated Trustees (MNTs), time constraints of Employee- Nominated Trustees (ENTs) or the retirement of a key trustee
- Schemes that are closed to accrual have no ‘active’ members
- Responsibilities on trustees are increasing
- Employers may drive the process as they find that some trustee boards move more slowly than their corporate timetable is used to
- PCSTs can be more commercial in their approach and timings
- PCSTs are more adept at choreographing a set of advisers and are able to give precise instructions for advice, talking in their language
- Employers with overseas parents who don’t understand how and why UK pensions work and can be frustrated by some trustee positions who, acting with the best intentions, can cause progress to be slower than ideal
- Avoid conflict of interests
- Assist with specialist/complex projects, such as buy-out.
Doesn’t a PCST result in more cost and risk?
If there is no professional trustee to start with then a PCST will result in a new cost stream. However, in most cases there will be a saving:
- A PCST can manage the advisory process efficiently, saving fees
- Actions are invariably progressed quickly so there is less financial risk which can result in a saving e.g. if an action is taken to reduce risk in the asset portfolio before adverse market movements
Some believe there are risks:
1. The PCST, having been appointed by the employer, will be at their behest and less likely
to consider member interests, and with the loss of MNTs there is no member representation in the decision process. However,
- PCSTs are professionals and have to act accordingly - as trustees they are dutybound to focus on member interests
- Member input can come via a member forum that can provide member viewpoints to the PCST.
2. The PCST may make complex decisions without any challenge or review;
- Trustee firms have processes to ensure a diversity of input into decisions, taking account of the wide pensions experience of other trustees in the firm.
What about oversight of PCSTs?
At present there is no requirement for a trustee to have a set of skills or pass an exam to start being a trustee.2 However, the Pensions Regulator recently published guidance on sole trusteeship, including that best practice is to have wider input than a single individual. Moreover, the Association of Professional Pension Trustees (APPT) and the Pensions Management Institute (PMI) have each launched accreditation schemes, with exams and professional development requirements. Whilst it is not mandatory, most professional trustee firms are ensuring that their trustee directors are accredited.
Should all schemes consider PCSTs? PCSTs, or professional trustees more widely, do not need to be involved in every scheme. Many schemes are well run by lay trustees, representing member and employer interests and engaging collaboratively with employers, progressing schemes to a common goal. The old saying of “if it ain’t broke, don’t fix it” applies in the pension world as well.
Where will we go from here? It is likely that with the decrease in active engagement by members in the running of pension schemes, increasing regulation and complexity in the pensions world (Guaranteed Minimum Pension (GMP) Equalisation, anyone?) and the desire to run pension schemes (some of which are hundreds of millions or multi-billion pound funds) more commercially, the prevalence of PCSTs will increase. It seems inevitable, therefore, that the regulatory oversight of PCSTs will rise in parallel, ensuring that the best standards and practices become increasingly commonplace.
- We have focussed on trustee firms not ‘sole traders’ in this article
- Once appointed as a trustee, there are requirements on knowledge and understanding, and keeping up-to-date
This article was featured in Pensions Aspects magazine January edition.
Last update: 27 January 2021