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Professional Trustees are like gold dust

Professional Trustees are like gold dust

Why companies should act now to get their pick of a scarce and valuable resource.



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Professional trustees

Defined Benefit (DB) pension schemes are as complex as major financial institutions. In many cases their liabilities are as large as the market value of the companies they belong to. No-one would ask you or me, with unrelated full-time jobs, to take a leading role in running another financial institution, to have a hand in its fate. Yet this is what we ask lay Trustees to do. It does not make sense.

Now that an increasing number of schemes are closed or closing to future accrual, managing DB pensions is largely a financial problem, not an HR one. The link to existing employees, which was one of the main reasons for lay Trustees, has gone. Almost all lay Trustees are well-meaning, take their roles seriously and want the best for their scheme members. But I am certain that if you asked them whether they were best placed to carry out the financial management of over £2 trillion of DB pension liabilities, they would just say “no”.

This complexity within DB pensions increases with each passing year. It is unreasonable and unrealistic to expect lay Trustees to be able to keep up to speed across all areas of pensions. This is a full-time job for professional Trustees, both in terms of keeping abreast of developments, and also being able to devote sufficient time to react quickly to events.

Quarterly meetings, which are the norm currently, slow down the ability to take actions that are in the best interests of schemes and their members.It can take months to educate lay Trustees on industry developments, such as new legislation, or trends within markets. By the time the Trustees have got to grips with an issue, an investment opportunity has often passed.

This leads to frustration from corporates, who are used to acting quickly and decisively. It is as though they are operating in different time zones to Trustees and that can create a further barrier to collaboration and detract from the job of managing assets and liabilities effectively.

The wide-scale use of professional Trustees could overcome this, so I urge the pension advisory and regulatory community to embrace the rigour and dynamism that they can bring.

That is not to say that there is necessarily no role for lay Trustees, who may retain an intimacy with and understanding of the scheme membership that a professional Trustee perhaps could not bring. But the strategic and financial management of schemes should be in the hands of those with the expertise and time needed to the job most effectively.

Most companies have the power to appoint a professional Trustee to run their scheme, either alongside or as replacement for the existing Trustees. Without doubt, this would get schemes operating more strategically and more efficiently. To these companies, I would say: act now to get your pick of a scarce and valuable resource that will soon be like gold dust.

© 2020 KPMG LLP, a UK limited liability partnership, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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