Corporate sole trusteeship of DB schemes has grown by 12% in the year to March 2023, reveals analysis from Hymans Robertson’s annual report on the sector: The future of corporate sole trusteeship. The report explains that the reasons for the continued growth include cost, a decline in member-nominated trustees and a reduction in company management time. Also at play is the search for efficient governance and decision-making, and increasing professionalism of trustee boards, as well as changes in risk profile or scheme funding progress. However, it warns that issues recruiting trustees with the right backgrounds and the demands of highly efficient service delivery could challenge the sole trusteeship model.

The research from the leading pensions and financial services consultancy also reveals that there has been a fall in the number of member-nominated trustees appointed to DB schemes. Their numbers declined by over half (53%), from 4,858 to 2,284. This, along with fewer available lay trustees in the 5 years to March 2023, has prompted employers to appoint corporate sole trustees. The report also looks at the role of governance and decision-making in driving growth in the sole trustee market. It points out that improvements in these two areas can reduce costs and lead to better member outcomes and, due to their expertise and ability here Professional corporate trustees are often appointed.

Looking back to the market volatility in 2022, the report also highlights how trustees’ investment skills and knowledge were tested. They had to make decisions about investment portfolios in a rapidly changing environment. This demand revealed skills gaps and led some schemes to fill this gap by appointing a professional independent trustee, either as part of the board or as a step towards a sole trustee arrangement.

Commenting on the levels of growth seen in the corporate sole trustee market, Shani McKenzie, Head of Sole Trustee Services at Hymans Robertson, said:

“The sector has grown by 12% despite a demanding year for trustees, particularly in responding to yield rises and reviewing their investment portfolios. Their investment skills and knowledge would have been put to the test, so many schemes looked to professional trustees who have experience in strategy reviews and investment solutions. We may see the response to the call for evidence into trustee skills throw further momentum behind trustee boards’ search for professionalism, including through corporate sole trustees. Growth will only continue to be achieved if trustees focus on diversifying resourcing solutions, as the pool of those with pensions experience is finite. Over the next few years, the impact of this may also mean that efficient operating models are paramount.”

The report highlights that sole trustees are able to add significant value when it comes to planning for endgame and risk transfers. It points out that schemes sought them out due to their skills and expertise in evaluating approaches to buy-out or endgame planning. It also shows that around a quarter (25% - 30%) of risk transfer transactions were by sole trustees.

Commenting on some of the challenges the corporate sole trustee market faces, Shani said:

“Following the recent market volatility, the needs of schemes have evolved. Many now find themselves closer to buy-out or needing to consider other endgame options and the skills and experience that corporate sole trustees have here are highly sought after. Corporate sole trustees played a central role in risk transfer deals in the year to March 2023, representing more than one in four transactions.  This is double the corporate sole trustees current presence in the DB universe. Our report concludes that these exercises have not placed strains on the time corporate sole trustees have available and that they bring several benefits to the broking process, albeit there are still wider obstacles to navigating this busy market.

“As with last year, governance is a central theme for the corporate sole trustee sector and 80% of the largest firms are taking steps to create efficiencies and standardisation in their approach to harmonise governance across their portfolio. The model can give rise to concerns in this area. Two of the most vocalised issues are diversity and independence. These challenges could be managed by ensuring sufficient attention is paid to having effective systems of governance in place and adhering to professional codes of practice.”

A full copy of the report can be accessed here: The Future of Corporate Sole Trusteeship.