EUROPE - Sponsor-dominated boards expose pension schemes to higher risk by protecting the sponsors' - rather than the schemes' - interests.

According to a Mercer poll of 800 trustees of 119 schemes, 60% of schemes have no independent trustees.

Mercer principal Rachel Brougham claimed boards with no independent trustees were less likely to question sponsors.

"If you have a trustee board made up largely of employees of the sponsor, there is clearly a conflict of interest," she told IPE. "In some cases, that conflict is so great, those trustees shouldn't be there. They are nervous of pushing the sponsor too far." 

Although conflicts of interest are common, these needed to be well managed, she said.

"If you had a no-conflicts rule, you'd have no trustees," she said. "But independent trustees have no interest in keeping things sweet. They will have more robust discussions."

Mercer also claimed that sponsor-dominated boards were less likely to scrutinise the scheme's covenant, with 37% of trustees saying their boards scrutinised the covenant once a year or less.

Citing the scheme covenant as "the single biggest risk to the security of the pension fund", Brougham said: "It needs to come up at every meeting, or the board will not be prepared if something goes horribly wrong.

"If you're scrutinising it constantly, you can spot the downward trends and get more money into the scheme or look at contingent liabilities, for example. Once you are in a crisis, you're not in a position to do anything about it."

Most boards, if they have independent trustees at all, have one. A few will have more than one for a specific time period - during a corporate transaction, for example.

The survey found an increase in the use of independent trustees among schemes under £50m (€59m), from 18% to 34%, and the largest schemes with more than £1bn, from 59% to 69%.

However, it noted a decline in medium-sized schemes.