The main reason behind low levels of confidence in decision making amongst pension scheme trustees is due to gaps in skills and knowledge, according to Mercer’s 2013 Pensions Governance Survey. Only 61% of participating trustees felt their board was sufficiently confident in making decisions on investment strategy, 64% were confident in negotiating funding valuation outcomes and 74% were confident in assessing the strength of the sponsor covenant. Amongst those who acknowledged a lack of confidence in decision making, the majority (66%) put this down to skills and knowledge gaps; 23% cited lack of time devoted to discussion.
Mercer’s survey covered 197 UK schemes with combined assets of over £450 billion - representing close to 25% of the total assets invested in UK Defined Benefit (DB) schemes, over 1,000 individual trustees and some 3.5 million members. The survey also revealed that only 56% of trustee boards require trustees to complete the Pensions Regulator’s Trustee Toolkit - a surprising finding given the legislative requirement for trustees to develop a prescribed level of knowledge and understanding, and the Regulator’s expectation that individuals will address their learning needs through either the Toolkit or an equivalent level of training.
“We are conscious that many trustees are concerned about the technical complexity of the role and the required time commitment. So it is surprising and disappointing that such a large proportion of schemes remain uncommitted to putting their trustees through the Toolkit training,” commented Clare Owen, UK Leader Governance and Trustee Services, at Mercer.” It is essential that quality time is set aside by boards to either complete the Toolkit or to undertake appropriate regular training to enable trustees to be competent and confident in their trustee role.”
“The lack of confidence in decision making amongst trustees often leads to delays in implementing change, new innovations or solutions to address the complex challenges associated with scheme financing. The result is higher costs for scheme sponsors,” added Ms Owen. “To capture new innovation and best practice in implementing financing solutions trustees need to work more closely with their scheme sponsor and consider delegation of some decisions to external advisers and professionals.”
The survey revealed that 67% of schemes remunerate at least one. Fifty percent of schemes pay the chair of trustees; those chairs who are not paid are mostly active members or senior employees of the sponsoring employer. “In order to obtain individuals with the required leadership skills and experience and knowledge base, companies should provide recognition and reward commensurate with the professionalism expected. It is difficult to insist on the highest standards of commitment, competence, and contribution when there is no remuneration or no fair remuneration. If people are paid fairly, they can expect to be held to account,” said Ms Owen.
Despite the importance of creating succession plans to ensure continuity in governance of the scheme, only around a quarter of schemes have any form of planning in place and of those that do, only 16% of respondents have a formal succession plan for all trustees. Overall, more schemes are evaluating their own performance with 74% of trustee boards doing some type of assessment, compared to 56% in 2010. More chairs of trustees (65%) are being assessed as well, up from 55% (2010).
“The increase in performance evaluation is encouraging. Self- assessment can be a relatively simple and efficient process that allows helpful reflection on a range of board activities,” said Ms Owen. “Engaging the board in an open and constructive discussion on the results of an assessment is generally well received by trustees and often leads to improved effectiveness.”
“Effective governance, which delivers sustained and professional oversight of the complex range of activities within a pension scheme, protects and delivers value”, added Elizabeth Renshaw-Ames, Senior Partner at Mercer. “At our recent 2013 Chair of Trustees Conference delegate feedback responded warmly to our solutions for professionalising trustee boards. We are committed to supporting our clients in continuing to improve the governance of their pension schemes.”
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