HR Trustees provides independent trusteeship services to pension schemes 'in difficulty'. Pension Funds Insider recently spoke to the firm's director, Giles Payne, to find out his views on the obstacles facing pension funds in the UK.

Pension Funds Insider (PFI): Why do you think more schemes are hiring independent trustees?

Giles Payne (GP): I think it is (about) bringing on board someone who is experienced and has very good knowledge of trust law so that they can help guide trustees into making or helping them reach the right decisions. Obviously they have consultants involved in pensions but a lot of the time trustees find it useful to have another view above that, to almost say 'we are looking at it from a trust point of view' instead of just from a consultancy point of view. Equally, if you are running a number of schemes as an independent trustee and you see a wide range of consultants saying a wide range of different things you might know something that is applicable to the scheme you are working on. So as much as anything it is to bring alternatives to the table.

PFI: What would you say is the most common pitfall for schemes nowadays, if there is one?

GP: I would say funding negotiations at the moment. Due to the fact that poor market conditions have lasted 3 or 4 years, recovery plans haven't necessary created recovery for the pension scheme. This means that the investment strategy is very important as well as negotiations with companies about contributions required and running valuations. You ensure that these are all run properly. You assess the employer covenant properly which then goes through into the negotiations talks with the employers and negotiations on recovery plans with the regulator.

PFI: In your role you often work with the PPF, are you happy with the way the PPF works?

GP: Yes, we are happy with the way they work but there are always going to be tricky situations because no two cases are alike. This means we will always have discussions with them.

I am involved with them in cases where as trustees we have to be particularly careful because you are not allowed to count on the fact that the PPF is there. But then again, the PPF have got a different set of obligations and priorities to you as trustees so you need to be ready for tough choices. They are looking to make sure that the situation gets absolutely no worse, whereas in some cases and situations that could work against your role as a trustee because you might feel like you are obliged to do something else on behalf of the members. So it is quite difficult. These discussions and negotiations take place are in particular situations though and in these situations having an independent trustee can help lead other trustees through the maze.

PFI: What are your views on the influence that the regulator has and how it uses its powers?

GP: I think the regulator is in a particularly difficult situation at this point as we recently had a couple of cases, such as Silent Night (link) where it has been tremendously difficult for them. They are stuck between a rock and a hard place trying to maximise the money they can get into a scheme without effectively pushing it over the edge and ending up in a situation just like Silent Night where they didn't succeed. It is a very tough place for everyone in terms of funding and there are lots of companies who are not necessarily making a fast profit and have recovery plans.

If you follow the regulator's guidelines, which is needed if you have a weak covenant, then you have to strengthen your funding assumptions and take investment risks completely off the table. This means that you extend the recovery period more and more. It is that commercial viability thing - that you don't want to put the company out of business otherwise you stop flowing any contributions into the scheme at all, and that is a skill. It is all about finding the right balance; looking at the scheme to the extent that you can but equally understanding that the employer needs to be there and needs to be profitable - it is not only there to help recover the pension scheme, it is there to make money.

PFI: How has the RPI – CPI shift played out in your experience so far?

GP: It is very difficult togeneralise because so often in these cases it is very scheme specific how the rules are written what you can and can't do. From the schemes that I've got I haven't seen a really clear drive towards moving to CPI and in terms of the schemes that I have looked at in close detail there are a number that have RPI hardcoded in their communications, so they cannot do anything. When the rules were drafted there was a call to write things down in plain English, to be as clear as possible, and that has now come back to the schemes in terms of RPI becoming hardcoded in their principles when it wasn't initially intended to be.

PFI: What are your thoughts on the recently installed Bribery Act? Will it make being a trustee, often a voluntary position, less attractive?

GP: I don't think so. In my experience it is quite clear that there are many companies that want to build a relationship with you as a trustee and as such you just have to use some sort of common sense. If you are making a decision about changing investment manager and an investment manager then wants to take you out for dinner, then it is just common sense not to become involved.

I think people who are looking to built relationships should fully accept that it is an open process in which they are appointed; they just want to make sure that they are on the list to be considered. If they do not get appointed then it is sad but nothing could be done about it.

PFI: In terms of good governance do you feel that here in the UK trustees are thorough enough?

GP: I have been involved in the pensions industry for the last 25 years and I belive government standards have improved a great deal over that time. The level of knowledge required has gone up fast as well and I have yet to come across people who do not take their duties seriously. Looking at that from the point of the independent trustee; people appoint them because they are concerned with doing things properly. They want to be seen as doing the right thing by their members, so - generally speaking - the intent is very good and very strong.

One of the areas where I have seen a lot of change is in communications. In the past people thought 'I am a member of a pension scheme so I will be alright' and now people understand that it might not be so straightforward. I see trustees trying to show people that their scheme is properly run.

PFI: What in your opinion are some of the biggest challenges faced by trustees in the next year?

GP: Auto-enrolment is certainly going to be a challenge faced by trustees but it is as much a company issue as a trustee issue. Communication is going to play a huge role –trustees need to communicate with the companies to understand what their intentions are. You need to really go through your pensions administration and make sure they are up to speed to be able to deal with all the issues that auto-enrolment brings, such as opt-outs for example.

This is where just experience of having seen it elsewhere and where having a stronger understanding of admin procedures would put an independent in a better place to ensure all the I's are dotted and the T's are crossed, that the right questions are asked of the right people.

First published 14.07.2011

azeevalkink@wilmington.co.uk