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Trustee revolution – a break from the norm

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Who sits on a Trustee board and why?

A simple answer might be those who have traditionally had a hand in running pension schemes; either through designing one, telling a sponsor how to fund one or actually do it. Anyone know an actuary? A lawyer? An accountant? Or an investment manager?

Has the industry got it right? Are Trustees making effective decisions based on sound reasoning? Let’s see…
In July 2019, TPR launched a consultation on the “Future of Trusteeship and Governance” 1. It covered various aspects of the day-to-day running of a pension scheme, but one of the key points was diversity of Trustee boards. That drive for diversity, perhaps inevitably, came with potential reporting requirements around activities to encourage diversity. If there is regulation out there why wouldn’t a regulator monitor compliance?

Looking at the industry’s response to the consultation, released by TPR in February 2020 2, there is clear agreement on the principle of diversity, although some argument on whether boards should be required to report on their approach.
Supporters extol the effect on behaviour of having to justify actions (if not outcomes). Perhaps an oddity in regulation where things tend to be right or wrong, but can you really compel a board to be diverse? Detractors feel that reporting requirements might lead to qualified but uniform candidates feeling their chances of success in a selection process are reduced meaning they don’t stand.

Diversity was borne out of a requirement within the public sector under the Equality Act 2010 but, thankfully, TPR have seen the wider benefits of diversity than pure compliance. They see diversity on Trustee boards representing a broad range of skills knowledge and perspectives. It isn’t necessarily about gender, age or something else, although that might come naturally with broadening the appeal of Trusteeship.

So, looking at skills required to be a Trustee, who has them?
·       Numeracy and risk – actuaries and accountants
·       Process and documentation – lawyers
·       Innovation – investment consultants
·       Analytical thinking and ability to question – all of the above?

Throw in a HR director, MD or factory manager and you have a typical Trustee board.
These professionals would appear to be similar in terms of education and experience (at least in relation to pension schemes), so are we in danger of “groupthink”? – a psychological phenomenon which leads to reduced effectiveness of decision making due to a lack of critical evaluation caused by commonality of thought process and background. Let’s hope not as good governance is founded on effective analysis and decision-making. But if we are, how do we fix this? Simple –introduce people who think differently.

At this point, we can probably highlight professional trustees as being worthy of distinction, especially those representing a firm. With training comes an ability to understand required skills and knowledge and to adapt behaviour accordingly. Those with the support of other Trustees get the added bonus of being able to share experiences and borrow knowledge from colleagues with their own background and development. But the requirement to have a professional trustee on board is a discussion for another blog.

Our typical Trustee board arguably all focus on the big picture; what does this mean to the scheme? or the employer?
What might be missing is the ability the think on a granular and individual level; what does the broad decision which suits the scheme as a whole mean to an individual member? how can the solution be tailored for non-compliant cases? will systems and processes cope with what’s needed or can they easily be adapted?

Two groups of individuals that might fill this gap are pension administrators and IT professionals.
Administrators know how to calculate benefits and spend their lives explaining complex subjects to members in simple terms. They have a macro understanding and are experienced at breaking it down to a micro-level to be relevant and understandable to individuals. They know how theory translates into practice and how to maximise efficacy following the inevitable changes that need to be introduced, removing perfection.

IT professionals work with logic and expanding standard processing to incorporate as many quirks as possible. And what’s more quirky than a pension scheme?!

These are two under-represented groups on Trustee boards who have just as much to offer, if given the opportunity. Employers are being encouraged by TPR to recognise the value of diversity and get Trustee representation from more than just the usual suspects. For everyone else, TPR are looking for volunteers to join their working party around diversity; anyone fancy promoting diversity by signing up?

Chris Tagg, Board Director at PASA