UK – A Watson Wyatt study has found that 25% of UK corporate pension fund trustees have less than five years financial experience and less than three years experience in trustee matters – adding to an overall drop in trustee confidence levels since 2003.
However, on average, trustees have approximately 17 years of financial experience and nine years of experience in trustee matters.
“It is perhaps not surprising that trustees in general are concerned about the level of knowledge and skills of their trustee boards and investment committees given the phenomenal increase in investment complexity during the past couple of years,” said Watson Wyatt European head of investment consulting Kevin Carter.
“This development, combined with a profusion of ‘solutions’ on offer, has no doubt challenged trustees’ actual ability as well as their own perception of their ability.”
Carter stated that “a significant minority” are facing increasing pressure to make effective investment decisions in a deficit-riddled environment.
“A key question the industry needs to ask itself is whether training on investment issues, which has increased significantly of late, is capable of satisfactorily reducing the skills gap and helping trustees to meet the requirements of the Pensions Act and demands of the new Pensions Regulator.”
The study - including 131 DB, DC and hybrid funds worth approximately £137bn (€203.6bn), and more than 400 trustees – also found that the “typical” trustee body spends less than 24 hours a year discussing investment issues.
“Although the typical trustee body spends a small amount of time on investment issues, which is somewhat alarming but not surprising, our experience is that the majority of this time is at least now focused on more important issues such as asset allocation and less on manager selection and monitoring,” said Carter.
“This is a shift in the right direction.”
The survey looked into ‘organisation’, ‘resource’, ‘expertise’ and ‘compliance’. Trustees rated organisational issues as most important and where they had highest ability. However, expertise was ranked as the area with weakest ability, and the understanding of derivatives and financial instruments was considered least important.