It does not happen often that a pension scheme or its employer changes the professional trustee company it uses, but is this about to change – and should there even be mandatory retenders?  

 

The British Tourist Authority – also known as VisitBritain – has appointed a new chair of trustees, Chris Roberts from Dalriada Trustees, to its pension fund board, replacing Law Debenture’s David Kidd. 

 

LawDeb’s website reads that Kidd, “although perhaps better known for getting straight to the point... displayed his indefatigability by successfully leading the British Tourist Boards throughout four years of protracted negotiations which ultimately resulted in the securing of guarantees from the Crown and the Scottish Government”. 

 

BTB had decided to retender the role, but Kidd did not put himself forward, and instead of the alternative LawDeb candidate, the public body chose a competitor firm. LawDeb retains the role of scheme secretary, who is appointed by the trustees. 

 

 
Replacements of professional trustee firms are currently rare, as many pension funds have only appointed their first professional trustee relatively recently. But the market is growing rapidly and consolidating. Twelve large trustee firms are now responsible for £1,150bn in assets at more than 2,000 schemes; each of their combined 280 trustees has an average of eight appointments, a survey by consultancy Isio has found. Revenues are in the region of £10m a year for the largest firms. Firms have average growth of 20%. Isio notes that despite robust price competition, revenues per client have increased because of projects and firms expanding their services. 

   

    

The growth and increasing maturity of the market could mean schemes will in future want to review their appointments. There is also the possibility that there will at some point be regulatory requirements or best practice on tendering, to avoid relationships between professional trustees and employers – who are typically paying their bills – becoming too close or leading to poor value for money. 

 

The Pensions Regulator does not currently prescribe whether and how often an employer or trustee board should retender or review a professional trustee mandate, while investment advisers are normally reviewed as part of the risk management process, and fiduciary management needs to be retendered every five years. 

 

"I think it’s something that will become as common as adviser reviews are nowadays,” says Michael Clark, managing director of trustee firm CBC Pension Services. Clark believes however that the relationship with the individual is “much more important than the wrapper”, therefore if the only reason for a review was cost, he would advise renegotiating the contract. 

 

Fees are being pushed down somewhat, but at the same time “the amount of work and complexity of it is only going up”. The upcoming governance requirements in the new single code will “whack fees up” because of the amount of work required by a trustee board, he predicted, coming on top of new climate risk requirements and growing investment complexity. The pandemic, and projects such as GMP equalisation or risk transfers will have also increased the need for extra hours. 

 

Conflicts could come into focus, and the regulator is already keeping a close eye on the growth of sole trusteeship. “There are examples of relationships where I think they are a little too close,” says Clark, who believes that “there needs to be a kind of creative tension” between trustee and employer: “You want to be creative, collaborative, but recognise that sometimes you come to solve the problem from different positions.” 

 

Despite this potential for conflicts, he says he is no fan of regular retendering because of the risk of box-ticking. “Many adviser reviews are [happening] because it’s on the risk register. Advisers get cued to this; they will ask, ‘Is it a genuine retender or a governance issue?’ To be fair to advisers they can’t spend their time chasing shadows,” he says. Instead, there might be an argument for a rotation at trustee firms to avoid conflicts, he suggests. 

 

  

A retender is often driven by a change in circumstance or the need for a specific skill, but there can be a case for maximum terms so as to drive diversity, equality and inclusion on pension trustee boards, said Vicky Paramour, managing director of Law Debenture Pension. She added that this can be achieved by a change in firm or  by “managing a clear and planned transition to another trustee within the same firm, should the board determine this meets their stated needs”.  

 

Paramour said: “For me, it’s about doing the best we can for our clients and the members of their schemes. I believe that when we get this right, everything falls into place." 

  

The UK Corporate Governance Code says serving more than nine years as a non-executive director is likely to, or could appear to, impair a board member’s independence. The code does not apply to pension trustees but it can serve as a reference point nonetheless. 

 

Paul Battye, chief executive of headhunters Hoffmann Reed said that most trustee terms of office are either three or four years and can typically be renewed for three or two terms respectively. 

  

"A board should consider the skills of its trustees on a regular basis to understand whether it has the right mix of soft skills, technical skills and leadership skills to carry out its duties in an effective manner,” said Battye, as well as deliver value for money. “This could lead to looking at board composition or training,” he added.