by Harus Rai, Head of Sole Trusteeship, Capital Cranfield
What is sole trusteeship?
Sole trusteeship replaces a full trustee board with a single entity, either an individual or, more commonly, a professional independent trustee company. While it won’t be right for all schemes, there are now hundreds of examples of this approach to governance in the UK, with a number of advantages driving schemes to move to sole trusteeship.
Advantages to moving to a sole trustee:
Removes the lengthy and expensive process associated with finding member-nominated and employer-nominated trustees: Finding individuals who wish to stand as either a member or employer-nominated trustee is becoming increasingly difficult and time consuming, with no guarantee that a vacancy will be filled. When an independent trustee acts as the sole trustee the need to have a member nominated trustee is removed.
Absorbs the time and costs of trustee training and knowledge (TKU): As the UK pensions system becomes more complicated, the costs associated with training lay trustees is increasing. A sole trustee will meet the TKU requirements through their membership of industry bodies and the continuous professional development standards they set, which generally go beyond the basic requirements of TKU. Appointing a sole trustee therefore removes the cost of training, and also frees up the time of lay trustees to help them concentrate on the sponsor’s business.
Eliminates conflict of interest and accelerates the decision making process: Whilst there are some extremely effective trustee boards, there are many which face internal tensions or conflict of interest (for example, where the trustee works for the sponsor) throughout the decision making process. This can lead to delays and therefore increased costs and missed opportunities. A sole trustee will be completely independent so will not have these same conflicts or tensions. In addition, a sole trustee can and will be managing the scheme and making decisions outside of the normal meeting cycle, rather than having to wait for a trustee board meeting.
Challenges to consider when moving to a sole trustee:
Maintain an “understanding of what is happening on the shop floor”: The lay trustee adds a very important skill – a deep understanding of what is happening with the employer’s business prior to any public announcements or financial results being published. It is important that any sole trustee works with the retiring lay trustees to understand the dynamics of the sponsor’s business, and appoint advisers who have the appropriate knowledge and experience for the needs of the scheme.
Avoid the risk of losing historical scheme information: It is important that any sole trustee works with the existing board and advisers to understand the history of the scheme, to avoid losing historical scheme information. Some schemes have opted for a consultative committee of former trustees, for a limited period, to help after the transition of the scheme to sole trusteeship.
Ensure clear communication with members:Moving a scheme from a trustee board containing member-nominated trustees to a sole independent trustee appointed by the sponsor can, if not communicated properly, cause concern to members. It is important for the new trustee to have a good communication strategy with members to allay any fears and address any questions around the true independence of the sole trustee.
Is sole trusteeship right for your scheme?
As trustees face increasing pressure to save time and reduce the costs associated their DB scheme, and as the topic of consolidation continues to gain momentum, now is the time to consider whether sole trusteeship may be an appropriate method of consolidation of governance for your scheme. While there are a number of advantages to moving to a sole trusteeship arrangement, it won’t be right for all schemes.
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