Gaining trust through preparation: key issues for pension scheme trustees.
Is your trustee board suitably prepared to manage what the future may hold? In these continuing uncertain economic times, members want to know that their trustee board is properly geared up to deal with predictable – and, more crucially, unpredictable – events.
The Sackers’ governance team ran a client workshop on topical governance issues recently and we heard a resounding message: that there is scope for continual improvement in ensuring trustee boards are tooled up for the job. And contingency planning is a critical piece of the jigsaw.
This checklist looks at key areas of contingency planning, focusing on how trustees can be prepared to act and respond to events in a timely and effective manner.
In this Briefing:
- Think ahead
- Develop the right infrastructure
- Do your homework
- Manage potential conflicts
- Build your support network
- Negotiations: getting the right results
- How Sackers can help with your governance issues
Work with us and your other advisers to map out events that may need managing. Some can be predictable, others less so. Those that are less predictable often have the added dimension of requiring a rapid response.
you can see them coming and so the need to be ready is more obvious. These can include:
- scrutiny by TPR of the valuation process;
- future service benefit changes/scheme closure; or
- risks to your scheme sponsor that were flagged in an independent covenant assessment materialising.
these can come from left field, but that does not mean you need to find yourself underprepared. These can include:
- external events, such as a market “shock” or Euro break-up;
- industry impact, such as the effect of the recent financial crisis on banks; or
- scheme sponsor specific events, such as a high profile scandal materially impacting covenant, a hostile takeover bid or insolvency.
Dealing with practicalities can be mundane but ultimately ensures you are on the front foot. Having the right infrastructure, ready to swing into gear, can enable a trustee board to respond quickly and effectively at short notice, whatever the event. Practical issues to think about include:
- Who will consider issues and take decisions? Standing or ad hoc sub-committees can play an important role in an efficient, modern trustee board structure.
- Do they have appropriately delegated authority? Develop terms of reference and delegations, with a clear remit (if appropriate) to take decisions without full trustee board buy-in.
- If decisions need to be taken by a group/sub-committee, cover off the practicalities. For example, think about how you will satisfy quorum requirements, such as ensuring scheme rules (or corporate trustee articles) enable attendance by video conference.
- Are decision makers readily contactable? Ensure email and telephone contact details are available. Think about empowering a deputy.
Knowing your scheme documents is not only a legal requirement, but it can also enable you to engage quickly and appropriately as events unfold. Action points might include:
- Undertaking a legal review to identify key powers under your scheme’s governing documents – don’t lose time having to action this after events start to escalate.
- Tailor the output of that review to potential scenarios or events – a core aspect of contingency planning.
- If powers or provisions are legally uncertain, consider how that might work to your advantage in a negotiation.
- Think outside the box – some scenarios can create opportunities to leverage powers beyond your scheme’s rules, such as a PR campaign, political pressure or TPR.
A conflicts policy that works well for day-to-day scheme business may not be fit for purpose when managing unpredictable events. Watch out for:
- Potential conflict pinch points on the trustee board.
- Your usual trustee support (pensions manager, team or secretariat) being conflicted – think about having in place clear boundaries, to be sure who will be on “your” side.
- Risks around receiving and sharing confidential information – an information protocol or negotiated confidentiality agreements can ensure processes are clear.
- Excessive constraints within confidentiality terms – as trustees, you will not want to be unduly constrained in communicating with scheme members, whilst balancing the interests of other stakeholders (such as your scheme sponsor or a bidder in a takeover).
In particular when dealing with unpredictable events, having credible, informed advisers to hand can make all the difference.
- Look beyond the core professionals – might you need covenant or PR advisers for example?
- Identify the right advisers early – work through beauty parades and appointment terms in advance. Watch out for potential adviser conflicts.
- Keep advisers “in the know” – are they up to speed with key changes to your scheme’s or sponsor’s circumstances?
- Keep advisers close – this can take different forms but even light touch, regular engagement can help advisers switch into gear quickly.
Most events will involve trustees having to negotiate, often with highly skilled (and sometimes aggressive) commercial negotiators. So how do you ensure you’re on a level playing field? Here are some top tips:
- Map out early on what you want, and do not want, from the negotiation – these things tend to be fluid, so keep it under review as negotiations develop.
- Having the right team is key – think about personalities, skillset and having clearly defined roles. Who should lead, who should listen, who should offer concessions?
- Plan concessions – “giving” is inevitable in a negotiation. Think ahead about what you might concede and take a break if you obtain an unexpected concession.
- Language is critical – words, tone and body language can help you win ground or lose credibility in equal measure. Use these soft skills to your advantage.
- Do not be afraid to recognise your own weakness – hone your skills in advance or bring in adviser support to strengthen your hand.
- Contingency planning – our broad client base means we have an insight into schemes of all sizes and complexity, across a wide range of industry sectors. We have worked with many to develop contingency plans that are tried and tested.
- Negotiation skills – we have developed a training session to help trustees get the right results from negotiations, particularly focusing on valuations. The session gets to the heart of negotiation tactics, adapted for the pensions environment.
- Terms of reference – we have broad experience in developing and drafting trustee sub-committee terms of reference, enabling us to focus on ensuring a committee’s remit is robust yet practical.
- Policies and protocols – governance policies can range from managing conflicts of interests and confidential information, to trustee job descriptions and business planning. We believe policies are not just for “box-ticking”, but need to be tailored to work effectively for a scheme’s circumstances.
- MNTs/MNDs – we sit on a number of selection panels for member nominated trustee/director processes and can provide an independent and objective view.
- Refresher training – we offer training, ranging from general updates to bespoke sessions, with many trustee boards favouring a short, topical slot at trustee meetings.