There are two voices among trustees that provide a fascinating contrast. John Hamilton (not a professional but a chair of trustees) is calling for trustees and employers to pay more attention to the implications of decisions on “end game” while Alison Hatcher (a professional trustee is calling for the voice of the trustees to be heard.
What we are seeing is a change in the weight of voice from trustees since the arrival of the pension schemes bill and I think it is the outcome of a Government (both DWP and Treasury) who are looking for pensions to take a lead.
I have worked with both John Hamilton and Alison Hatcher over the past three years and seen how they have moved from peripheral to central to the conversation. The new Aberdeen Stagecoach scheme and Vidett are now instances of change and touchstones for people’s view of professional pensions. Who would have thought that that would be the case in the early years of this decade let alone what came after the Financial Crisis.
It is this new self confidence in themselves that gives trustees a new voice, a voice that has been missed when the voice of pensions was subdued and given outlet mainly through the Pension Regulator and through actuarial consultancies.
The comments that follow John Hamilton’s post and Alison Hatcher’s article confirm this newfound confidence. Monty Hadadi is another voice of this new generation of spokespeople who have been given the space and voice to speak their mind.
I cannot see the Pension Schemes Bill getting properly enacted without these people at the fore. They are the missing voices of the past twenty years , voices that we went into this century with but which we lost in the misery of the collapse of defined benefit in the private sector and the terror of “de-risking” that throttled innovation and growth.
I see what is going on in the House of the Lords this week, the amendment of the Pension Schemes Bill to make it better, to give DB schemes a chance to run as a key part of this and I would add several members of the upper house who are making progress happen.
We have to consider the increasing range of duties being placed on Trustees. As multiple speakers in the House of Lords Second Reading of the Pensions Schemes Bill pointed out, the role of the Trustee is absolutely central to many of its provisions. These move trustees into areas they have not traditionally have to consider and determine appropriate actions. Examples that immediately spring to my mind are the equitable distribution of surplus in a DB Scheme, fiduciary duties and sustainability issues in MasterTrusts, their key role as an intermediary between the provider/sponsor and the members in CDC and asset manager sponsored DB schemes.
In these areas we should not expect, nor in my opinion, should we have detailed guidance from a Regulator as that would tend to suggest a mechanistic approach and runs the risk of being dominated by a particular interest group (an example being the risk analysis approach to defined benefit schemes which led to opportunities not being considered or avoided).
Although many people trained in these disciplines believe they have the range of experience to fulfill the trustee role, a competent Trustee board should not be dominated by those whose background and training are primarily concerned with risk measurement or avoidance: namely actuaries and lawyers. In many cases we need pension entrepreneurs who will look for and seek out new opportunities (as perhaps the Stagecoach pension scheme trustees led by John Hamilton have done).
We increasingly need trustee boards with a wide range of differing skills; such as in investment selection, probably particularly in assessing long term sustainability issues, in balancing competing needs of differing cohorts of members, accessing sponsor longevity issues over the lifespan of the membership, if necessary ditching the provider or sponsor, but particularly being prepared to take on risks in a controlled manner.
I therefore believe we need to have trustee boards containing a wide range of skills and experiences and in particular (so called) lay trustees who feel empowered to challenge those coming from a particular professional background and also the advisors they engage. I am not sure that trusteeship can be taught and this tends to mitigate against professionalism (except perhaps in the need to be paid)
I agree with PO.
While trustees’ legal duties and aspects of governance procedures are clearly teachable, qualities like integrity, sound and prudent judgment, and impartiality, are often considered innate or developed through life experience.
While trustees must adhere to their trust’s governing document, they also often have discretionary powers that require careful consideration of all relevant factors and the ability to ignore irrelevant personal views.
This often requires accessing professional advice to ensure all relevant considerations are met when making such decisions.
One aspect of prudent judgment, however, is recognising when sufficient professional advice has been taken.
The dangers inherent in group decision making include groupthink and paralysis by analysis, or analysis paralysis, when overthinking a situation may prevent trustees from making a decision, leading to inaction, delays, or missed opportunities, perhaps driven by perfectionism, fear of making the wrong choice, or simply information overload, making some choices feel overwhelming.
I’m not sure members of pension schemes, however, wish their trustees to be more “entrepreneurial” than prudent.
Thanks again Byron,
I agree about the dangers of groupthink, overthinking and overanalysing, but wonder whether the dangers are increased or decreased by having trustees from widely different backgrounds.
I was struggling for a word to describe behaviour that was the opposite of risk dominated or obsessed – the only one I could think of was “entrepreneurial” having discarded “opportunistic” I am sure there must be a better word, but I hope the message was clear. Any suggestions?