The effectiveness (or not) of trustee boards

Topic:

Legal & governance

Date published:

Thursday, 5 September 2019

Author:

Wayne Phelan

Under 21st century trusteeship, The Pension Regulator (TPR) aimed to move all eyes to individual trustee and board effectiveness. We’ve taken a look at how far pension trustees have come on their effectiveness journey. The answer is, “not as far as we’d all hoped.”

Our recent survey showed there’s a lack of trustee boards assessing their performance and, when they do, the assessment itself isn’t very effective either. Boards are even less effective when there’s no formal process for bringing on new trustees – you really do need to start as you mean to go on.

Perhaps more concerning is fundamental basics aren’t being achieved by all trustees on a board. We’re talking about common sense things like being well prepared for meetings and actively participating in discussions, as well as must-haves like understanding the strategy and direction of their pension scheme.

Let’s look at a bit more of the detail behind these headlines.

Only 56% of trustee boards currently assess their performance. Of these, only 31% feel their review process is very effective. Room for improvement? I think that’s a yes! As you might expect, there is a big/small scheme divide. Only 22% of small pension schemes assess performance, compared to 79% of very large schemes.

More of a surprise is many of those who told us they aren’t assessing performance are either a chair of trustees or a pensions manager. One is responsible for board performance and the other would, perhaps, be expected to help instigate a review.

31% of trustee boards can’t say they are very effective

Even though most feel their board is very effective, the fact nearly one in three are only slightly or moderately effective concerns me. This type of result makes it unsurprising TPR’s is asking whether every pension scheme board should have a professional trustee in its current future of trusteeship consultation.

There are some core characteristics a pension trustee board needs for it to be truly effective. Our research showed there’s most room for improvement in building effective working relationships with the scheme sponsor and asking the right questions to challenge advice. Interestingly, it seems trustee boards are better at building effective working relationships with scheme advisers than they are at building them with themselves!

Only 15% of boards with no formal process for bringing on new trustees can strongly agree all board members understand the strategy and direction of the pension scheme

Thankfully, most pension trustee boards do have a formal process for bringing on new trustees, but one in ten don’t (double for small schemes). For those that don’t we discovered a few worrying facts:

• fewer assess board performance
• board effectiveness is less highly rated
• investment experience is significantly under-represented
• characteristics of a good trustee board are rated much lower - for example, building effective working relationships with the scheme sponsor
• ratings for individual trustee characteristics are also significantly lower – including understanding the strategy and direction of the pension scheme and those being well prepared and active participation fundamentals

This really does demonstrate the truth of that ‘start as you mean to go’ on adage.

TPR’s future of trusteeship consultation highlights “the trustee model isn’t broken but it does need to work better”. A good place for any scheme to start is reviewing individual trustee and combined board effectiveness and implementing effective trustee training. We do this for all our clients and, having been part of many board assessments, I can’t stress enough how valuable I and my co-trustees find it.

 

 

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