4 October 2022
There has been a rapid rise in the amount of schemes appointing a professional trustee, with 43% of pension schemes now having one. In the year to July 2022 there has been a 10% growth in UK schemes appointing Professional Trustees. LCP’s latest report of the Professional Trustee (PT) market also highlights that Sole Trustee (ST) arrangements now account for a third of these appointments and that their popularity is growing for larger schemes, driven by the need for simpler governance and cost savings.
Recent volatile markets in particular have resulted in good governance to be at the centre of making effective decisions, often helped by a Professional Trustee or Sole Trustee.
A Sole Trustee appointment is where entire Trustee boards are replaced with a Professional Trustee firm, typically consisting of 2-4 named individuals from the firm. LCP’s Sole Trustee report on the PT market is based on a survey of responses from 13 Professional Trustee firms appointed to 2,174 schemes with over £1,200bn of assets.
Whilst historically the ST solution was often considered for pension schemes with assets of £100m and below, the survey highlights a growing trend for larger schemes in the £1bn+ range and those with overseas parents now opting for a Sole Trustee arrangement often driven by the need for simpler governance, cost savings and endgame planning. 2022 has seen a fair amount of activity in the £1bn+ bracket. 8 of the 13 firms now have a ST appointment with assets greater than £1bn. The largest Sole Trustee client is now £4bn (Lawdeb) followed by £2.4bn (ITS).
There has been a strong drive for Sole Trustee appointments if a particular project needs expertise eg. to manage a buy-out, member options exercises or benchmarking of existing advisers. ST’s tend to focus on streamlining services through their advisers. A quarter of all schemes with an ST group key services with one firm for efficiencies – a trend that looks set to continue.
The most common reason for the move to an ST is the impact of increasing regulation. 45% of those surveyed said that increasing regulation was the main reason for the move. Followed by succession planning at 29% and cost at 26%.
Other key findings from the report are:
- Diversity, Equity & Inclusion has become a huge focus for PT firms with Trustees increasingly drawn from a wider range of backgrounds, together with a shift towards younger Trustees and a close to 60/40% split of male vs female Trustees.
- PT firms are taking the ST model seriously: all of them have developed a system of governance to help ensure appropriate decision making and efficient delivery of their services. Many have a newly appointed Head of Sole Trustee.
- LCP expects the ST market to continue to expand with double digit annual growth, at a rate that outstrips the appointment of PTs to schemes more generally.
Nathalie Sims, report author and Partner at LCP, commented: “The rapid rise in larger pension schemes opting for a Sole Trustee arrangement is staggering and is testament to the many benefits such as fee saving, quicker decision making and succession planning. The ongoing evolution of efficient Sole Trustee models offered by each of the different firms as well as their increased focus on DE&I makes the Sole Trustee model an attractive proposition.
“Ongoing regulatory pressure as well as volatile market movements has resulted in specialist and dedicated support to be high in demand, helping to navigate through the uncertainties and provide comfort that the schemes are well prepared for years to come, making sure that members get the best possible outcomes. We expect that this is only the beginning for the market.”