The number of member-nominated trustees attached to defined benefit (DB) and hybrid pension schemes has fallen by more than a third since 2018 to less than 3,000, according to new data from the Pensions Regulator (TPR).
At the same time, professional corporate sole trustee (PCST) arrangements have risen by more than half, from 840 in 2018 to more than 1,300 as of last year.
Trade union Prospect unearthed the findings through a Freedom of Information Act request.
Steve Thomas, Prospect’s deputy general secretary, said: “The scale of the reduction in the number of member-nominated trustees is shocking, but also an unsurprising consequence of several trends, including greater consolidation and the professionalisation of trusteeship.
“This weakens accountability and the quality of member engagement. Trustees are getting greater responsibilities, including over the return of surplus, but these trends only undermine members’ confidence that decisions are made in their interests. Government should seriously consider strengthening statutory requirements for member representation.”
“We believe that the inclusion of the member voice in governance is crucial as part of a well-balanced, diversified board of trustees.”
John Flynn, AMNT
While separate data also shows the DB sector is shrinking as more schemes opt for a buyout with an insurance company, the switch from member-nominated trustees to sole trustees is happening far quicker.
TPR data indicate that the DB universe has been shrinking at a rate of around 2% a year since 2018, while the number of member-nominated trustees has been falling by 7% a year on average. The number of PCSTs has grown by an average of 7% a year in the same period.
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AMNT urges action to preserve effective trusteeship
The Association of Member Nominated Trustees (AMNT) has been raising concerns about the rise of PCST arrangements for several years, warning that such moves risk losing the member voice in pension scheme governance. It is also concerned about potential conflicts of interest and a lack of scrutiny of those taking on sole trustee positions.
John Flynn, co-chair of the AMNT, said: “We believe that the inclusion of the member voice in governance is crucial as part of a well-balanced, diversified board of trustees. Member trustees are the only group with ‘skin in the game’ in the decision-making of the pension scheme and with no business interests in the process. There is no way in which this can be replicated.”
In its recent response to the Department for Work and Pensions’ consultation on trusteeship and governance, the AMNT called for more protections and support for member-nominated trustees, including a legal right to time during working hours to complete their trustee duties.
The association also called for compulsory member representation within the governance structures of defined contribution master trusts and emerging collective defined contribution schemes.
Flynn added that any transition to a PCST model from a broader trustee board structure should only be permitted when it has “the considered and advised agreement of the existing board” and without “coercion of employed trustees”. If no agreement can be reached then members should be consulted, he added, and TPR notified before the change is made.
“We should also remember why member-nominated trustees were introduced in the first place following the Maxwell scandal,” Flynn explained. “It was felt that trustee boards completely stuffed with company-appointed ‘professionals’ might sometimes be open to manipulation by unscrupulous employers. It was, justifiably, thought that MNTs would only want what is best for members because it is best for them too.”
Why schemes appoint sole trustees
The PCST model has long been used by employers with small DB pension schemes that may otherwise struggle to attract members to take up trustee roles. However, a recent report from LCP showed a rise in sole trustee appointments for schemes with more than £1bn in assets.
The Association of Professional Pension Trustees recently updated its code of practice for sole trustees, including new guidance on appointments and preserving the expertise of exiting trustees.
Julia Yates, an APPT Council member who leads the association’s work on PCST, added: “There is recognition that a PCST model of governance might mean that the direct link to the member voice is diluted. Most PCSTs will work closely with the outgoing trustees to help build lines of communication with the membership.
“PCSTs sometimes use more formal ‘pension committees’, made up of former member-nominated trustees and others, to sit alongside the PCST and provide direct input to the running of the scheme with the aim of retaining the direct member voice.”
Vassos Vassou, vice-chair of the APPT, said the reasons for shifting to a PCST arrangement depend on individual scheme circumstances, but can include the need for technical expertise for projects such as buy-ins.
LCP’s report indicated that cost savings and the speed of decision-making were also often factors in moving to a sole trustee model.
