The objective

We often work with trustee boards who, for various reasons, have found it necessary to assume a more operational role: more like an executive management team than the non-executive role intended for trustees.

Our client was concerned about their governance. They found themselves relying on the time commitment and knowledge of their longest serving trustees. Little was documented and historic knowledge and context was kept in the minds of those that were there at the time.

The trustee rightly recognised the significant risk this represented to the scheme and their members. They needed guidance on how best to address and mitigate this risk. Firstly through appropriate succession planning, secondly through documentation, and thirdly through retention of the key trustees.

The trustee was interested to know how other smaller defined benefit schemes were tackling these issues, and, indeed, whether they were experiencing them at all! Through our relationships and market knowledge, we were able to assemble a group of peers to undertake a short benchmarking survey.

The method

Having identified a suitable group of benchmark pension schemes, we contacted them to gauge interest in sharing their practices confidentially. The comparator schemes were issued with a brief survey seeking to understand the variety of approaches to succession planning, remuneration and knowledge documentation.

We collated the data and shared the results with the participants on an anonymous basis. The results of the survey are confidential, but we can share the high level learnings.

The results

Unsurprisingly, the practices were widely varied, again proving the old adage that there is no one-size-fits-all approach. However, what was surprising is that the issues faced by our client were also being faced by many of their peers.

Smaller DB schemes can be heavily reliant on their long serving trustees and need to plan for the day when they step down. A number of participants were concerned that their current model was at risk as long serving trustees moved towards retirement. The retention of key trustees, and provision of in-house trustee support, is also becoming more challenging as many schemes become legacy matters.

A number of schemes addressed these issues by appointing a specialist outsourced pensions management provider, whereas others, like our client, have adopted a more operational role themselves.

It is common practice to remunerate trustees, although this may be limited to the trustee chair, or pensioner trustees only. The approach to remuneration was varied, with some offering simply a nominal fee for a set number of meetings, and others often something more akin to a salary for a more executive role.

A number of schemes had appointed an independent trustee to address a specific skills gap and provide additional resource. Where this is the case these independent trustees were usually chair of the trustee board.

What was common across the board was that knowledge needed to be documented: a challenge facing many schemes, not just those at the smaller end of the scale.

Through the survey results and the context we were able to provide around them, including our views on best practice, our client was able to drive through changes to how they approached their governance. The case for change was supported by evidence from their peers; a particularly powerful way to argue a case!

Key Learnings

• Whilst practices vary around remuneration and succession, there is a common problem with documenting the knowledge of the long serving members of the board.
• Using a peer-group comparison can be powerful way to present an argument for change to a Sponsor with budget and resource constraints.