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Pension fund trustees 'lacking in confidence', survey shows

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Gaps in skills and knowledge are the main reason behind low levels of confidence in decision-making among pension scheme trustees, according to Mercer’s 2013 Pensions Governance Survey.

The survey revealed that less than half of respondents, 46%, felt confident in making short-term tactical asset allocation decisions.

Chairs of trustees have an even more pessimistic view, with 54% feeling they have missed market opportunities, compared with 19% for other trustees.

Only 61% of participating trustees felt their board was sufficiently confident in making decisions on investment strategy, while 64% were confident in negotiating funding valuation outcomes, and 74% were confident in assessing the strength of the sponsor covenant.

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Amongst those who acknowledged a lack of confidence in decision-making, the majority, 66%, put this down to skills and knowledge gaps, while 23% cited lack of time devoted to discussion.                                        

Schemes with assets below £250m (€297m) – particularly below £50m – find many areas of investment decision-making challenging and tend to take longer to implement decisions.

Clare Owen, UK leader of governance and trustee services at Mercer, said: “The lack of confidence in decision-making among trustees often leads to delays in implementing change, new innovations or solutions to address the complex challenges associated with scheme financing.

”The result is higher costs for scheme sponsors. To capture new innovation and best practice in implementing financing solutions, trustees need to work more closely with their scheme sponsor and consider delegation of some decisions to external advisers and professionals.”

The survey also found that 42% of schemes require no mandatory qualifications for trustees.

Just over half of all schemes require trustees to have completed the Trustee Toolkit despite the legislative requirement for trustees to develop a prescribed level of knowledge and understanding, and the regulator’s expectation that individuals will address their learning needs through either the Toolkit or an equivalent level of training.

Owen said: “We are conscious many trustees are concerned about the technical complexity of the role and the required time commitment. So it is surprising and disappointing such a large proportion of schemes remain uncommitted to putting their trustees through the Toolkit training.

“It is essential that quality time is set aside by boards to either complete the Toolkit or to undertake appropriate regular training to enable trustees to be competent and confident in their trustee role.”

Three-quarters of all schemes now carry out some form of trustee board assessment, while 44% of schemes attract the required skills and competencies of the trustee board via the appointment of an independent trustee.

The involvement of independent trustees has increased significantly across all but the smallest schemes, with 48% of schemes having at least one independent trustee, either an individual or someone from a trustee company.

Independent trustees now chair 34% of schemes.

The report can be requested here.

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