UK - Finance directors may be able to wear two hats and operate both on behalf a company and as a trustee of a pension scheme providing there are likely to be no significant disagreements over funding, according to trustees.
Speaking at a Red Table discussion hosted by Redington Partners earlier this week, several trustees agreed finance directors can add valuable skills to a pensions trustee board, though stressed in many cases should conflict arise the finance director will be unable to fulfil one of their duties.
"When real divergence of the interests of the trustees acting for members and sponsors arises, I'm afraid it's not possible for a finance director to wear two hats," said Chris Holden, chairman of trustees at the £2.5bn (€2.75bn) GEC 1972 plan - caught up in controversy surrounding its purchase by Pensions Corporation - and the Northgate Information Solutions schemes.
"Either they can't fulfil their duty to the company, or they rest of the trustees will feel there is somebody here who should not be," he added.
Similarly, Chris Wagstaff, trustee of the Aviva Staff Pension Scheme as well as head of investment training and development at Aviva Investors, said he felt it can be difficult to have the employer sitting on the board of a pension plan, and himself felt conflicted on occasions.
"When we talk about the running of the schemes' assets, I often recognise I need to zip it because Aviva Investors runs about 85% of the assets and it is inappropriate to comment," said Wagstaff.
"I do feel conflicted to a certain degree. You are going through the process of deciding how you will how [the scheme] will be financed in the long run. I feel it is often more important that the employer is not sat on the board," he continued.
In contrast, Simon McClean, chairman of the investment committee for the Commerzbank (UK) pension scheme, said there was no reason why employers and the trustee board cannot reach agreements providing both parties come to the table with realistic assumptions when discussing future funding and asset liability management.
"There should be 50/50 representation between employer and employee members with independent trustee at the helm," said McClean.
"When there are gaps to fill on trustees, an independent trustee should step in and return the balance at all times. On the investment structure, there needs to be a great deal of understanding on investments."
That said, ensuring there is sufficient knowledge to deliver all work required of the trustee board is becoming more complicated, acknowledged the trustees, as the level of complexity found within investment strategies today means even those with years of experience are having to learn new skills and adapt thinking.
Wagstaff said his own scheme has been through an exercise to implement an asset liability management (ALM) strategy but had to put new systems in place and rethink strategy half way through, in order to complete the task.
More specifically, the trustee board felt it was needed a specialist working group of three to manage the day-to-day tactical decisions and transaction so tried to use its most experienced investment experts.
"Even with 20-plus years' city experience, it has been a steep learning curve, but we feel fairly confident from the implementation perspective," said Wagstaff.
"We worked out we could reduce the sensitivity of the funding levels and VaR by 30%, and broken PVO1 interest rate and inflation rate risk down to within 1bp of interest rate changes."
He continued: "But there was one concern: we were looking to do some pretty big transactions in a volatile market. So the trustee board delegated the powers to the investment unit and a working group was set up to do the necessary empowerments between scheme and corporate banks, and to work closely with Aviva and Redington on the detailed work on the swap programme.
"Part way through the programme we had to change tack for our fund. It was far more cost-effective to use the nominal assets so we as an investment unit recommended to trustees we make the change. We executed swaps at very tight spreads and within months of the original deadline. But it was complicated," he added.