Why the role of scheme secretary needs to evolve

 This article first appeared in Professional Pensions on 9th January 2020

At a glance:

·       The regulator is pushing schemes to improve their governance

·       Trustee boards need to assign more importance to the scheme secretary role

·       A good scheme secretary can offer invaluable support to the trustee board

There is a growing need for schemes to improve governance. John Reeve says better trustee support will improve their ability to meet these increasingly onerous requirements.

Trustees play a critical role in the operational efficiency and governance of their pension schemes, but their role is under pressure to evolve and meet the challenges facing both schemes and sponsors.

In January last year, Professional Pensions editor Jonathan Stapleton spoke to TPR executive director David Fairs who made three observations about trustees. The first was that, in small defined contribution (DC) schemes, trustees think they are doing a good job but often it is difficult to see where they deliver value for money, concluding that often a master trust would be a better option for members. Fairs also observed variable standards within professional trustees and went on to raise a concern over the increased use of sole trustees.

In summary the regulator wants trustees to improve their governance as it sees a relationship between good governance and better member outcomes.

Whether there is a causality remains to be seen, it may just be that those arrangements that provide better outcomes also have good governance. Nonetheless, good governance is good for members, and should be encouraged and applied to master trusts, consolidators, multi-employer arrangements and small schemes.

Cash strapped

In considering how governance can be improved we must also appreciate the tremendous effort that most trustees put into their role. Most are unpaid volunteers with a day job elsewhere.

Trustee demands are increasing at a time when many sponsors are less engaged. Defined benefit arrangements are often closed with few current employees and DC arrangements are increasingly master trust or a standard TPA offering. The time when sponsors saw their pensions as a tool for recruitment, reward and retention are gone.

There is also increasing pressure on costs, the pension pound can only be spent once. If it is spent on governance and trusteeship, it cannot be spent on members benefits.

Demonstrating effective management

Trustees now, not only need to do the job correctly, but also be seen to do it correctly. I challenge my trustee clients to consider what they would show the regulator if they walked through the door and asked them to prove they had considered all the issues.

Trustees now need to understand and demonstrate their memberships' needs are being addressed, get good advice, challenge that advice, manage conflicts and deal with increasingly unengaged sponsors. Moreover, they need an audit trail to show that they have done these things.

Returning to David Fairs' concerns about trustee boards. A lack of capacity in the professional trustee market along with increased enforced demand is likely to result in an even wider range of standards among those becoming trustees at a time when the need is greatest.

The regulator's specific concern regarding the lack of depth of resources within the sole trader, sole trustee market needs consideration. It is different to when professional trustee companies are appointed as sole trustee, where the term sole trustee isn't really appropriate since the arrangement benefits from significant resources albeit through a single corporate entity. Whatever the model Trustees need to be held to account and show that they are being challenged.

I suggest that trustee boards think more like company boards and assign the same importance to the scheme secretary as the company secretary. In the corporate hierarchy the company secretary is a senior, experienced and highly regarded role advising the Directors and holding them to account. Too often in the pension world the perception is that the scheme secretary is just responsible for pouring coffee and taking the minutes - this needs to change.

Embracing the Cadbury report

The Cadbury report said: ‘‘The company secretary has a key role to play in ensuring that board procedures are both followed and regularly reviewed. The chairman and the board will look to the company secretary for guidance on what their responsibilities are under the rules and regulations. All directors should have access to the advice and services of the company secretary."

By adopting this approach the scheme secretary can offer ‘executive support' to the trustees and the board to ensure that they manage the arrangement appropriately and focus on member outcomes. They can also manage the relationship with suppliers, advisers and the employer, whether this is a relationship of mutual benefit or one of constant negotiation and compromise.

To be truly effective the trustee executive / scheme secretary role needs to be independent of the trustees, otherwise they cannot challenge the trustees appropriately, and independent of the employer or any other conflicts.

Whilst I have questioned the link between governance and member outcomes what is clear is that better trustee support will improve the ability of trustees to do their job and meet the increasingly onerous requirements placed upon them.

 John Reeve, Director

Cosan Consulting