Should it be mandatory to have a professional trustee on each board?
31 Jul 2019
The Regulator’s recent consultation on Trusteeship and Governance raised the question of whether professional trustees should be mandatory on every trustee board. So should this be the case?
My short answer to this is no! Or not yet at least.
Professional trustees have a lot to offer, often having deep pensions knowledge and long experience in the industry and bringing insight from their roles on other schemes. Where they are added to a board, they very often add value, and enhance the governance. But that is not the same as saying that all schemes without a professional trustee are poorly governed. Far from it.
Governance excellence is a more complex matter than simply adding professional trustees to all boards. The quality of the trustees is of course crucial – these are the people ultimately making the decisions and who are accountable for the management of the scheme. But others play key roles too.
Other key players
We hear little from the Regulator on the importance of scheme secretaries. Indeed, there is no requirement to have a named scheme secretary (as there is to have a Chair in DC schemes, and shortly for DB schemes), although the board must of course have minutes of trustee meetings. As most trustees take a ‘non-executive’ approach to their roles, the scheme secretary is critical to a well-governed scheme, at the highest level being a governance expert who keeps the board on track, suggests agenda items, and ensures the advisers are getting on with their actions.
And what about those advisers? Good quality advisers also have a big role to play in good governance. A quality consultant as a matter of course will ensure the trustee board are kept appraised of latest developments, and proactively suggest training items and actions that move the scheme, and the board, forward.
Supply of lay trustees
There are lots of highly effective boards without professional trustees who run well governed schemes supported by strong secretaries and high quality trusted advisers. Currently, these schemes do not require professional trustees. However, there is no doubt that recruiting trustees (particularly member-nominated trustees for DB schemes), is increasingly difficult. The problem is exacerbated by many existing trustees having been in post a long time and keen to step down after many years of service. This shortage of lay trustees suggests that the direction of travel will be increasingly professional. And this may happen sooner for DB schemes than own-trust DC who have a wider pool of active members to draw on.
So, at the moment, making professional trustees a mandatory requirement isn’t necessary. However, the problems of supply mean we are likely to see increasing numbers of boards turning professional regardless of legal imperative.