Sole trusteeship is a growth area for trustee firms, but the risks that come with this approach have attracted the attention of the Pensions Regulator, which is looking to explore this area further. Is sole trusteeship an efficient way to deal with a pension fund professionally, or an easy route for cutting member interests out of the decision making?  

Sole trusteeship is becoming increasingly common. Corporate sole trustee appointments grew by 12% in the year to March 2023, and now make up a third of professional trustee appointments, according to consultancy Hymans Robertson, which estimates that corporate sole trustee appointments by DB schemes could double in five years.  

Among the multitude of schemes that have hired sole trustees is the Credit Suisse Group (UK) Pension Fund, whose sponsoring employer, the now UBS-owned Credit Suisse International, hired Independent Governance Group as the sole trustee of the fund starting 1 August 2023. The scheme has a £1.3bn defined benefit, which is highly funded with investments fully derisked, and a £1.1bn defined contribution section.   

There are no separate rules for sole trustees, but the regulator is keenly aware of the potential risks in this area. On its website, it states: “If you act as a sole trustee on a scheme this can pose risks to members in some circumstances. Therefore, we may place greater scrutiny on schemes with sole trustees.” 

There is a legal requirement for trustees, including sole trustees, to demonstrate high standards of knowledge and governance, but as the appointments of sole trustees gather pace, concerns have not gone away. TPR now plans to explore the risks that need to be managed, such as a lack of diversity, members having less of a voice and conflicts of interests.  

It is also planning to put in place mechanisms that can track individuals across schemes to give it a better understanding of the standards of governance in particular schemes and hold those responsible for them to account. The regulator is also trying to gain insight into the demographics and diversity of trustees through tracking and will work with the Department for Work and Pensions if legislation is needed to achieve this.   

A spokesperson for TPR said: “Good quality sole professional trusteeship can bring improvements to the running of pension schemes, but we recognise there are also risks that need to be managed and this is an area we will explore further through our work with professional trustees.” 

A tightening of TPR oversight could be welcome news for some. The Association of Member Nominated Trustees is, unsurprisingly perhaps, sceptical of sole trustees. Co-chair Maggie Rodger says there are currently no safeguards over who can be appointed as a sole trustee, and while they tend to be professional firms, there is no requirement for them to be in this category.  

For the AMNT, the regulator’s planned register of trustees is not enough in terms of regulation. Rodger calls for a higher bar of training and experience for sole trusteeship and a fit and proper person test. 

“The lack of protection is allowing a return to Maxwell territory, which is totally unacceptable,” she says.

MNTs became mandatory in response to the Maxwell scandal to ensure checks and balances on pension fund decision making via member representation. The AMNT fears this is being undone with the rise of sole trustees – Rodger points to the recent case of Norton Motorcycles, where a director took on the role as sole trustee and then self-invested the scheme’s assets, leading to substantial losses for the scheme members.
 

   

"The process of moving from a trustee board to a sole trustee appears, in many schemes, to be at the employers’ discretion – not needing the agreement of or even consultation with the existing board, much less members,” Rodger notes, saying the ability to remove members’ voice from the governance structure without consultation “feels wrong”. 

Having a professional sole trustee shifts the dynamic in favour of the sponsor, she says; with surpluses to decide over and more choice about endgame, this is a topical issue. 

She also fears industry ‘groupthink’ and market concentration as professional trustee firms merge and decide over ever more schemes. They typically come from pensions backgrounds, while MNTs have a variety of backgrounds depending on their sponsor’s activities. 

Despite these concerns, Rodger finds professional trustees typically want to be good trustees to their schemes. 

“The problems are not about them as such. I have heard them expressing some of the above concerns too, and the increasing industry focus on the issue will hopefully help to find some answers,” she says.  

The regulation of sole trustees is an evolving area, says Vassos Vassou, council member at the Association of Professional Pension Trustees.  

“In our view, there is still more that can be done to regulate PCSTs,” he agrees, and admits that “conflicts do exist and need to be managed carefully”.  

However, he also stresses that for commercial sole trustee providers, the independence, professionalism and integrity of trustee decisions for any given appointment is critical to their reputation: “If PCSTs make poor decisions, then that can affect the much wider portfolio of business.” 

The APPT has created a code for sole trustees with input from the regulator, and all professional corporate sole trustee firms with trustees accredited by the APPT have signed up to the code.  

Vassou says ‘sole’ trustee is a misnomer, as two or more specialists normally help run the scheme under this model.  

Sole trustees can make decisions swiftly and efficiently, without the need for additional training or advice, saving third-party costs, and trustees are always available at short notice to make decisions when needed – for example, when crisis hits, he argues.  

While the AMNT fears a loss of diversity of backgrounds from professionalisation, Vassou believes the ability to appoint trustees with different skills and protected characteristics increases diversity.  

Some professional trustees also find that there is scope for conflicts and employer overreach. Clare James, head of PCST at Zedra Governance, says her firm is aware of cases where a sponsor has chosen to introduce a sole trustee model where the sponsor has not been happy with decisions made by a full trustee board.  

This “highlights why it is imperative for sole trustees to be relied upon to act with integrity and in the interests of members”, James says. “Sole trustees should not allow themselves to be compromised in any way by the sponsor and should be prepared to resign their appointment, if appropriate.” 

Zedra has seen an increase in the popularity of the sole trustee model, for DB schemes across all scheme sizes and situations, says James. The model is especially attractive where schemes are undertaking projects like securing a buy-in, where trustees need to act quickly.  

Not all appointments are to DB schemes, however. “We are aware of sole trustee appointments to DC schemes but with the trend of smaller schemes moving to DC master trusts, we see fewer of these appointments,” says Shani McKenzie, head of sole trustee services at Hymans Robertson. 

She says sole trusteeship is “no more prevalent” than professionalising an existing board, another area of growth. 

“There is perhaps a greater focus on sole trusteeship due to the change in governance structure it brings,” she says. “What often goes unsaid is that some corporates will commission a governance evaluation of the current board and alternative governance approaches before choosing... sole trusteeship as the optimal outcome for achieving scheme objectives.”