Trustees must change working style

Pension scheme trustees struggling to meet rising governance challenges presented by the current economic downturn need to change the way they work, says Hewitt Associates.

It is urging trustees to change the way in which they are working to ensure that they are able to respond much more quickly to the current rapidly changing environment. It argues that meeting on a quarterly basis may no longer serve trustee boards well and says trustees will need to look at their structure and the way they operate.

Hewitt also argues that the requirement to assess the sponsor’s financial standing in an objective way may lead to a need to consider the appointment of more independent trustees.

It says medium term investment opportunities may mean trustees consider a more nimble decision-making structure to the regular quarterly investment sub-committee meeting.

Hewitt has seen a 50 per cent increase in requests for governance services and third party support in the past 12 months.

Most popular have been requests have been for project managing significant changes in pension schemes, particularly where consultation, negotiation and service restructuring are involved.

Hewitt says that as a result of increased attention by the Pensions Regulator or buy-out discussions, trustees are looking more critically at how services are delivered, with reviews of administration and governance structures also increasing.

Hewitt’s specialist governance team was established under Lorraine Harper in March 2006. The team now provides governance consultation to more than 100 UK clients.

Lorraine Harper, head of Hewitt’s governance team, says: “Trustees are facing greater pressures than ever before, with pension schemes coming under increased scrutiny from both shareholders and the Pensions Regulator. Significant advances in developing trustee knowledge and understanding have been made over the past few years, to meet these challenges.

“However, the uncertainty of the current economic climate has left many trustees feeling exposed to significant risks, such as the potential impact of deflation, weakened employer covenants, asset allocation and the implications of their investment strategy.

“Trustees are no longer stewards, they have to be risk managers and negotiators as well. Now, more than ever, pension scheme trustees are eager to receive clear direction and, in many cases third party support to give them the confidence in their ability to respond to the demands of the role.”