Evolution, not revolution: LCP sets out a blueprint for modern trusteeship

In their response to the DWP’s consultation on trustees and governance for Trust-based pension schemes, LCP acknowledges the rapid growth of independent trustees in the market as well as an increased pool of experts to draw from as Trusteeship becomes more complex.

When it comes to the appointment process of Trustees, LCP recommends an independent appointment process and oversight, especially when it comes to Professional Corporate Sole Trustees (PCST) to ensure all options are being considered in the process.

Currently, appointment of PCSTs to Defined Benefit schemes is made by the sponsoring employer, who also has the power to remove the appointed trustee. Even through a formal process, employers can be minded to appoint trustees who have a similar mindset to them and therefore reduce the level of challenge in considering future proposals and all possible options.

Other key points raised in their response, are:

• Trustees continue to deliver robust governance across a wide range of schemes, supported by long established trustee law and a thriving professional trustee market. However, LCP highlights growing variation between trustee models, achieving the best outcome for members will require continued investment in skills, diversity and effective governance structures. 
• The move towards larger DB, DC and CDC arrangements is intensifying commercial pressures. Many professional trustee firms now offer bundled services beyond core trusteeship, which can support efficiency but also reduces the independence of oversight if procurement and performance assessment are not reviewed externally. LCP’s research shows that most major firms provide additional in-house services.
• The emergence of new options around the potential return of surplus to employers adds an additional layer of complexity to scheme decision-making. In some cases, this may influence the range of viable strategic outcomes being considered, particularly where there is greater discretion over scheme end-game timing. As a result, maintaining clarity around what constitutes the right decision for each individual scheme, and demonstrating that decisions are being taken squarely in members’ interests, can become more challenging. Clearer statutory guidance on surplus use and the management of conflicts would help support consistent, well-evidenced decision-making and reinforce confidence among all stakeholders. 

LCP are also calling for regular independent reviews of PCST performance and governance and clearer TPR guidance to support consistent conflict management across the industry.

LCP believes that these steps will help ensure trusteeship continues to deliver high quality outcomes for members as market structures evolve.

Nathalie Sims, LCP Partner, commented: “Trusteeship has always adapted to meet the needs of members, and this consultation is a chance to strengthen that journey. What schemes need now is evolution, not revolution. With increasing regulatory demands, complex decision making and heightened scrutiny around areas such as run-on and surplus use, trustees must be equipped to act confidently and independently. Boosting transparency and embedding review processes will help ensure trustees continue to deliver high quality governance without losing the flexibility that has long been a strength of the UK framework.”

David Fairs, LCP Partner, added: “Trusteeship in the UK is fundamentally strong, but the market is changing at pace. As professional trustee firms grow and consolidation accelerates, we need safeguards that keep member interests at the centre of every decision. Independent oversight of trustee appointments and clearer guidance on conflicts will help maintain trust in the system and ensure governance keeps pace with the scale and complexity of modern pension schemes.”