Research conducted by consultancy LCP has shown a shift in the UK pension trustee scene as a recent study revealed a 12% growth in the appointment of professional trustees among UK pension schemes in the year leading to June 2023.
This increase means half of all UK pension schemes now rely on professional trustees, while 20% of these schemes employ sole trustees, according to LCP’s report ‘Sole mates or soul mates’.
As demand for professional trustees increases, the burden on trustees has escalated with it as they must manage multiple roles across multiple pension schemes, LCP stated, adding that increasing regulatory demands, drive for operational efficiencies (through solo trustee arrangements) and succession planning are the key factors causing this trend.
According to LCP, one concern is whether professional trustees can manage these mounting responsibilities and maintain high quality services.
Larger pension schemes have utilised the expertise of professional trustees, while smaller schemes may recognise their benefits but struggle to afford the high cost for their specialist services.
LCP’s report suggests that as professional trustee firms are expanding their services into a variety of domains – such as investment, covenant and insurance de-risking – smaller pension schemes may utilise this diversification by hiring trustees with specialised expertise, which tailor their services to specific needs while being cost-effective.
Over half of the participants in LCP’s survey have in-house covenant expertise, which presents an opportunity for smaller schemes to implement these knowledge centres without having to disburse the full expense of hiring an all-round dedicated expert.
The report shows that, despite the decline in the defined benefit market and the government drive for scheme consolidation, there is still significant room for the professional trustee market to grow as specialist firms evolve their approaches and service models.
David Fairs, LCP partner and former chief executive officer of The Pensions Regulator, said: “It will be interesting to see whether consolidation of professional trustee firms provokes a regulatory response, as a relatively small number of firms will potentially have significant influence over governance and operational standards of a significant number of retirement pots, as well as responsibility for investment strategy.”