Many UK pension trustee boards are not fit for purpose and cannot meet the demands of 21st century pensions governance

The claim has been made by Mark Hodgkinson, director at Muse Advisory, a UK-based independent pensions governance and administration consultancy, who also said that UK pension funds could learn a great deal from their corporate counterparts.

He believes that pension scheme boards in the UK were too reactive and should instead focus on a more proactive and strategic management approach.

"The demands of pension scheme governance seem to have grown exponentially over the last 15 years, but the operating models of many trustee boards have not developed adequately over the same period," commented Hodgkinson. "Sadly, the result is that many boards are simply not fit for purpose to meet the demands of 21st century pensions governance."

He explains that "back in the days of perceived pensions surpluses" it seemed acceptable for trustee boards to be reactive and adviser led, but that this is no longer a characteristic of effective trustee boards today.

"Today's truly effective boards are led by exceptional chairmen who garner talent around the trustee table and delegate management activities in order to focus the board's energies on the strategic agenda," said Hodgkinson.

He contrast this state of affairs with the standards of governance trustees expect of the actual boards of companies that they choose to invest in: "Why should pension scheme members not expect similarly demanding standards of governance from their own pension scheme's trustee board?"

Richard Butcher, managing director of Pitmans Trustees Limited, says he agrees with the general thrust of the comments made by Muse, however, he also says that a trustee board is not the same as a corporate board and stresses the role of the lay trustee.

"Like it or loathe it, we have a long standing system of pension governance by lay people. Of course, there is a lot that a professional trustee can add to this, but we wouldn't want to lose the role of the lay trustee," says Butcher.

"The lay brings an intimate link between the governance of a pension scheme and its members and employer. This is an invaluable resource. The standard of behaviour expected shouldn't be inconsistent with this model."

Butcher and Hodgkinson both outline key areas where they think trustee boards can learn from the corporate model. According to Butcher this is the ability and willingness to make and act on decisions.

"Too many trustee boards become paralysed by indecision or inaction and the ability to think strategically, to develop a strategy and to execute that strategy. This is particularly crucial for DB trustees," he says. "Everything we do should be geared toward securing the members benefits as soon as possible at the least cost to the employer. This objective can't be achieved if there is no one steering and driving the scheme forward."

Hodgkinson says that any board that is "striving to enhance its capability and effectiveness" should pay attention to the UK Code of Corporate Governance, which lists the standards for companies listed on the London Stock Exchange and sets out how company boards are expected to operate.

"A good start would be to ensure that every trustee board chairman has a clear role profile that sets out the chairman's responsibilities for shaping and leading an effective board. While it is designed to ensure focus on shareholder's interests, the concepts can equally be applied by pension fund trustees who are charged with safeguarding members' interests."

First published 08.09.2011

azeevalkink@wilmington.co.uk