Professional trustees have an increasingly important role to play in scheme governance, overseeing a sector in a state of change while facing more oversight themselves.
The Department for Work and Pensions consultation on trustees and governance closed in March and we await its conclusions. It does acknowledge though the shifting landscape. It says: “With a more consolidated market there will inevitably be a move away from the traditional lay trustee board. The market is evolving away from small schemes with a single sponsoring employer. This has meant that professional trustee arrangements have become more prevalent over the last five years, increasing the potential for conflicts of interest and preferential treatment for in-house services.”
As a result the DWP says it’s “vital” to strengthen scheme governance, particularly with the ongoing decline of single-employer trusts. It adds the remaining trustees overseeing these schemes will need support to develop new skills, not least when it comes to default retirement options.
The Pensions Regulator is also adjusting to this new reality. In April 2025, it announced it was extending its oversight to professional trustee firms, highlighting key areas of focus. This includes relationships with employers, profit and remuneration models, sole trusteeships and in-house advisers.
When asked for an update, a TPR spokesperson said: “Good governance is foundational and professional trusteeship has an important role to play in a market that is becoming larger and more complex. Trustees must be independent, expert, and capable of robust challenge, regardless of scheme type, and members’ best interests must be at the centre of decision-making. Professional trustee firms are now under our oversight, and we welcome the DWP’s recent consultation on trusteeship to make the system fit for the future.”
Speaking about this communication with TPR, Bob Hymas, director at BESTrustees says: “We have welcomed the engagement and found the discussions to be constructive. Indeed, we want to engage further to help TPR establish a sound process going forward that recognises the broad requirements and range of pension schemes, and the mix of lay and professional trustees. The risks arising from the different business models
of professional trustees must also be considered.”
He says TPR understands the challenges faced by schemes and sponsors and the range of circumstances articulated above. “Balance is being achieved in the current process. But this could be harder in future if there are attempts to create a ‘one-size-fits-all’ approach to oversight or regulation. We believe in being flexible and working with each scheme on an individual basis to get the best outcome for members and sponsors. One helpful objective of TPR is to provide sponsors with guidance on appointing trustees and, in particular, a professional corporate sole trustee (PCST).”
He adds that the engagement has not given him concerns about their firm’s business model and approach to service delivery. “There are areas where we can make some changes to our processes, but these are generally formalising existing practices and understanding more about TPR’s information needs.
We are giving thought to the direction of travel and where TPR oversight and DWP regulation might land in future.”
Hymas adds there are concerns over multiple service lines from a single firm and as a minimum, there needs to be greater transparency, “but this does not necessarily mitigate the risk”.
Master trust reference
In terms of how the market is shifting, Vassos Vassou, vice chair at the Association of Professional Pension Trustees (APPT), says: “Master trusts have the governance budget to spend time and money on developing their solutions, so some of the larger DC schemes and occupational DC schemes are using that to reference their work for their own schemes, particularly when it comes to investment options, member communications
and engagement.”
He says the other area rapidly evolving is decumulation. “We’re seeing a lot of trustees keeping this area under close watch. It’s quite tempting to rush in, but with new ideas coming along all the time, you want to ensure you’ve got something that will work for the longer term.”
Antonia Balaam, head of master trust, Aegon, says: “All trustees are under increasing pressure as regulation and new initiatives continue to build. While much of this is necessary, there is a risk that schemes become overly focused on governance and reporting, losing sight of member outcomes. Professional trustees are typically better equipped to manage this complexity, given it is their core focus, rather than one responsibility alongside a wider day job.
“As the landscape evolves, more employers are looking to offload increasingly onerous and costly governance responsibilities, while retaining confidence that members are well looked after. This is driving continued momentum into master trusts, where professional trustee boards are focused on delivering strong member outcomes.”
Vassou adds that there is discussion around how TPR oversight might evolve and what could come into play. “The firms are very keen to engage with TPR, show them the kind of good work that they’re doing to help TPR understand how they operate. There is a spirit of cooperation emerging between TPR and different firms, with a view to TPR taking some of the best ideas that they see and then developing their guidance from that.
“From an APPT perspective, this will help drive levels of knowledge and understanding and bring in experience of working with different schemes, for example DB, DC, hybrid, CDC, and so on.”
In terms of the potential for conflicts, he adds: “We recognise there are a lot of concerns. There are vested interests across our industry, including for professional trustees, and these need to be managed. We note that professional trustees are not part of the employer. They’re not part of the scheme either, so they avoid two of the biggest conflicts, but obviously they have others. We want to recognise these and put proper management plans in place. The main conflict for the professional trustee is actually a commercial one, so we need to be open about the way they get paid, the way they work and so on. And the APPT is encouraging
this process.
“For some schemes, a PCST is used. This is usually to help improve levels of governance or help the scheme deliver a particular objective, such as completing a buy-in and buy-out. Member-nominated trustees may become uncomfortable if their view and/or the members’ views become diminished. The APPT encourages employers and PCSTs to work with the outgoing trustees and the wider membership to ensure this doesn’t happen.”
Conflicts of interest
There are strong views, of course, from another member organisation, the Association of Member Nominated Trustees. Maggie Rodger, co-chair of the AMNT says: “We feel that the voice of the member is being lost in the push to consolidation and the growth of the mega commercial funds, not just master trusts. We are concerned that unless members see some link to the increasingly large mega-funds, they are less likely to engage. However, it’s also about having representatives of the only risk holders included in the governance process. This therefore includes CDC as well as DC.”
Does that change their views about professional trustees? Rodger says: “Our concerns about member representation are not about professional trustees per se, although we do see an increasing concentration risk. There is
a small group holding control of a vast swathe of members’ funds with some interesting definitions of ‘independence’. But in general, our concerns are about systems and structures.
“We think that professional co-trustees can bring experience to a complicated scheme, and that a variety of people from different backgrounds around the board table is likely to bring robust discussions and good outcomes.
“Where a small scheme is so mature it finds it hard to bring members to the board, a PCST, at the agreement of the outgoing trustees, can be a suitable solution. We are, however, very concerned by the dismissal of functioning boards in a switch to a PCST.”
She says that as the industry consolidates and contracts, and with employers eyeing surpluses, there may be other pressures leading to a change in trustee structures, which may not always be not in the best interests of members.
Rodger says there are also concerns that some trustee companies supply multiple products or services to the same scheme. “This creates conflicts of interest and weakens governance, and can potentially also reduce member outcomes.”
She adds: “We also have concerns that more subtle conflicts of interest are emerging (or perhaps have always quietly existed) where trustees are introduced to a scheme by advisers and ‘reciprocity’ is expected. And we are concerned that a PCST may be perceived by employers as a way to increase control of the assets, especially surpluses.”
She adds that anyone appointed as a sole trustee should be registered and accredited. “At the moment there seem to be absolutely no controls on appointments.”
She adds that transfers to a PCST should be with the agreement of the existing board, or by a consultation of members and PCST resignations should be reported to TPR and the succeeding trustees with details of the situation.
Another act
She says the recent Pension Schemes Act may need to be followed by another to cover some of the issues raised in the consultation and with the level of change in the industry.
Hymas adds: “The AMNT is right to present the case for its membership. We believe in the role of MNTs/lay trustees, but we do see situations where some are more effective than others. It is important that as trusteeship evolves, there is recognition of the different styles of individuals and their characters, but the important measure is how a board as a whole works – it is about effective decision-making and recognising that the trustee role is effective decision making based on independent advice.
“All trustees, however appointed, lay or professional, have the same responsibility to members. Members should not feel their voice cannot be heard. It is challenging, as schemes become larger and multi-employer, but it is a challenge that has answers.”