Should all Trustee boards contain at least one independent trustee? The answer today surely has to be a definite yes. After a decade of disastrous investment markets and negative market conditions the past performance of trustees is in the spotlight and it does not look good. Trustees exist to protect the interests of the beneficiaries but in far too many cases they do not appear to have done so with any great degree of success.
The Pensions Regulator website states that trustees have four three main tasks
• Acting in line with the trust deed and rules
• Acting prudently, responsibly and honestly
• Acting in the best interests of the scheme beneficiaries
• Acting impartially
Can every trustee board claim with any degree of confidence that they comply with all four tasks?
The first is a given, read and understand the rules then apply them. The next three are more difficult to demonstrate. Were trustees prudent enough when agreeing funding schedules in the past? Was there too much reliance on over optimistic future growth and yield assumptions? Did trustees act in the best interests of the beneficiaries when they failed to get the required hard cash support from the sponsor? How many trustee boards can truly demonstrate impartiality?
The more obvious cases such as British Airways and BT where pension deficits run into billions are well known but below the big company radar are thousands of schemes in trouble. All have trustees and it is fairly logical to conclude that to varying degrees they have failed in their duties to protect the interests of their beneficiaries. To be fair, no one party is solely responsible for the current situation and joining trustees in the dock are politicians, international accounting standards committees, actuaries, fund managers and just about everyone else involved but none of them have the stated legal responsibility for protecting the beneficiaries. As the management consultants say, “this is where the rubber meets the road” everything and everyone else is secondary.
Could independent trustees have prevented deficits arising? On their own, the answer is probably no but would the stakeholders, particularly the sponsoring employer have been held to account one two or even three triennial reviews ago, the answer is certainly yes. If this had happened and the proper conservative actuarial assumptions had been made along with a strong case for realistic, future focussed, company contributions then the situation would be more positive today.
A trustee board consisting solely of senior company employees and other scheme members has a clear conflict of interest and can never be fully objective or demonstrate the required impartiality. The natural preference for the sponsoring employer is to retain cash in the company rather than use it to meet future pension liabilities. An employee or ex-employee trustee is clearly conflicted and is unlikely to feel able to voice concerns as strongly as they should. The only way to ensure that trustees do speak up and do feel confident that they can engage the sponsor/trustee chairman in realistic debate is to have independent trustees.
There is no clear end in sight, at least I can’t see it, to the current difficult market and economic conditions. Those schemes with triennials coming up followed by difficult negotiations with their sponsors need to review their trustee boards. If they can’t demonstrate clearly that they can act in the interest of the beneficiaries and are not confident in their ability to hold the sponsor, advisers and other stakeholders properly to account, then they need to appoint independent trustee who can help them do so.
