Almost half of UK pension schemes now employ a professional trustee, with one in three doing so under a professional corporate sole trustee (PCST) arrangement according to new data from LCP.
It’s latest report shows that this has led to a concentration of pension assets being overseen by a relatively small number of professional trustees, with 350 of these trustees looking after £400bn of scheme money.
This report analysed information from 13 professional trustee firms (and TPR data) with LCP finding that the majority of these assets are concentrated across just three major companies. This covers both DB and DC assets.
LCP says that historically it is smaller schemes, of £100m or below that have had a higher proportion fo PCST arrangement, but its latest report highlights the growing trend for bigger schemes of £1bn plus to replace their trustee boards with a PCST arrangement.
The pension consultants said this trend was due to the increasing complexity and weight of new regulation and the need for cost efficiencies. It said this trend can also been seen among UK schemes with overseas parents who want simpler governance arrangements.
The report: Sole mates or Soul mates? Professional Corporate Sole Trustees and their sponsors found that demand for individual independent trustees for DB schemes (sole traders, not part of a professional trustee firm) seems to be increasing at a slower rate: 4 per cent of UK pension schemes had an individual independent trustee involved five years ago; the number is at about 5 per cent now.
The report also found little demand for fiduciary management solutions within a PCST model. PCSTs also tend to focus more on streamlining services by their advisers: 25 per cent of all schemes with a PCST group key services with one firm for efficiencies.
LCP partner head of strategic pension relationships, Nathalie Sims says: “To many pension scheme sponsors it may seem a no-brainer not to move to a PCST model. Dealing with one firm represented by one or two people seems far more straightforward than having to discuss projects with the entire trustee board. This is especially true for schemes that are trying to run large projects during tight timeframes, such as GMP equalisations, manage buy-ins or buy-outs.
“PCSTs are however not suitable for every pension scheme: The model can sometimes highlight conflicts, especially if the change happens around tense valuation negotiations. The key is to ensure there remains independence and diversity of thought once appointed and that the transition is done carefully to prevent loss of scheme knowledge”
LCP principal Laura Amin adds that new TPR powers are likely to accelerate this : “Making what in hindsight could be proved to be the ‘wrong’ decisions will quite literally in some cases be criminal under the new Pension Schemes Act. The new TPR powers will also add another dimension to real and perceived conflicts of interest, particularly for trustees who also have key senior roles in the business.
“We anticipate both of these factors will lead many more schemes to seek to appoint an independent professional trustee or professional sole corporate trustee services.”
In response to this growing trend LCP says it has launched a a full-service proposition for PCST schemes called, LCP Advance.
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