The paper, by the leading pensions and financial services consultancy, also explores some of the factors and scenarios that will likely have the biggest impact on the market in the next five years. It considers possible outcomes if there is a change in two key factors: buy-out becomes more or less affordable and if regulation that incentivises run-on materialises.
The potential impact of four scenarios for schemes were considered in the paper: buy-out on the horizon; the quick buy-out; the open market; and the run-on boom. The analysis showed that if a quick buy-out market develops, a short-term boom could be seen, but it would then be followed by a reduction in the need for sole trustees’ services. In all other scenarios sole trusteeship and sole trustee consolidation look set to grow.
Commenting on the current state of the sole trustee market and what the future holds, Shani McKenzie, Head of Sole Trusteeship, Hymans Robertson says: “We looked at the market and assessed where sole trustees are most commonly used today. There is a concentration in governing small schemes with less than 1,000 members. Only around 6% of DB schemes that have 10,000 or more members are governed by sole trustees and we anticipate notable growth among these larger schemes. Faster windup timescales for small schemes have contributed to the recent slowdown but there remains some 4,000 small DB schemes. Only 20% of them are using the sole trustee model, so there is huge potential for significant growth opportunity here too. If this is realised, the slowdown that we have observed will just be temporary as firms continue to recruit and new firms enter the market.
“Historic drivers of sole trustee market growth remain pertinent to schemes of all sizes considering their governance options. A key question underpinning future demand for sole trustee services is whether professional trustee firms can continue to resource the increasing number of schemes. The continued demand for professionalisation will encourage the entry of new firms, therefore challenging consolidation of market providers.
“However, over the longer-term the levers impacting growth become more uncertain. There will be a tipping point in terms of professional trustee firms’ ability to successfully recruit trustees and resource the increasing number of appointments. Continued recruitment and emergence of new firms feels plausible and will also contribute to the pause of any consolidation in the professional trustee firm landscape. It could also perhaps extend the timescales for that tipping point beyond the next 5 years, after which we do anticipate a persistent slowdown over time.”
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