LCP report reveals that 350 professional Trustees look after c400bn of pension scheme assets under a PCST arrangement
27 July 2021
LCP’s new report Sole mates or Soul mates? PCSTs and their sponsors analyses data collected from 13 of the major Professional Trustee firms and data obtained by the TPR to look at the rise of PCST arrangements. These are arrangements where schemes effectively contract out trustee board duties.
While historically schemes of £100m and below have had a higher proportion of PCST arrangements, the report highlights a growing trend for bigger schemes of £1bn+ to replace their trustee boards with PCSTs.1 in 3 schemes with a professional trustee are now under a PCST arrangement.
The increasing complexity and weight of new regulation, the need for cost efficiencies and the trend for UK schemes with overseas parents to want more governance simplicity are all drivers behind the rise in the market.
Key findings of the report include:
- Almost half of UK DB and DC schemes employ a Professional Trustee, with one in three of these doing so this under a PCST arrangement.
- Across the 13 PT firms surveyed, the majority of the assets are concentrated across 3 of the major firms.
- Demand for individual independent trustees for DB schemes (sole traders, not part of a professional trustee firm) seems to be increasing at a slower rate: 4% of UK pension schemes had an individual independent trustee involved five years ago; the number is at about 5% now
- Stating governance as one of the key reasons for implementing a PCSTs solution, there seems to be little demand for fiduciary management solutions within a PCST model; PCSTs tend to focus more on streamlining services by their advisers: 25% of all schemes with a PCST group key services with one firm for efficiencies.
- LCP predicts that the rise in PCST arrangements is only set to continue and have launched a full-service proposition for PCST schemes called, LCP Advance in response to this increasing trend of reducing the governance burden and enhanced decision making.
Nathalie Sims, Partner, Head of Strategic Pension Relationships at LCP, said: “To many pension scheme sponsors it may seem a no-brainer not to move to a PCST model. Dealing with one firm represented by one or two people seems far more straightforward than having to discuss projects with the entire Trustee board. This is especially true for schemes that are trying to run large projects during tight timeframes, such as GMP equalisations, manage buy-ins or buy-outs.
“PCSTs are however not suitable for every pension scheme: The model can sometimes highlight conflicts, especially if the change happens around tense valuation negotiations. The key is to ensure there remains independence and diversity of thought once appointed and that the transition is done carefully to prevent loss of scheme knowledge.”
Laura Amin, Principal at LCP, added: “Making what in hindsight could be proved to be the “wrong” decisions will quite literally in some cases be criminal under the new Pension Schemes Act. The new TPR powers will also add another dimension to real and perceived conflicts of interest (particularly for trustees who also have key senior roles in the business). We anticipate both of these factors will lead many more schemes to seek to appoint an independent Professional Trustee or Professional Sole Corporate Trustee services.”