How fewer than 500 people control over half a trillion pounds in pension assets - and what makes them tick

The majority of workplace pension money in the UK – over £1.2 trillion - currently sits in traditional ‘Defined Benefit’ pension schemes overseen by trustees. However, according to new research by LCP, the voice of these ‘pensions powerbrokers’ is rarely heard in the corridors of power. Unless this changes, the report warns, plans to ensure UK pension assets are used more productively to promote economic growth are likely to fail.

The new report highlights the fact that DB pension assets are hugely concentrated, with just 50 schemes (out of a universe of more than 4,800 schemes) accounting for half of all DB assets. Decisions on how that money is invested are taken by fewer than 500 trustees across those schemes, including over 150 who are simply lay members of their pension scheme, nominated by other members to serve as trustees.

To provide greater insight into the mindset of trustees, LCP has conducted interviews with trustees from Professional Trustee firms, with individual professional trustees, and with the Association of Member Nominated Trustees. The results present a rich picture of how DB pension schemes operate and what makes for an effective and well-run scheme.

Key findings include:

• Trustees can be hugely influential in determining how pension scheme assets are invested and in setting the ‘endgame’ for the scheme from the range of alternatives now available, though the nature of that influence can vary from scheme to scheme.
• Despite this influence, trustees – both lay and professional – told LCP that their voices were often not heard.  Ministers regularly meet with representatives of the pensions industry, asset managers and insurance companies, but rarely have face-to-face meetings with the trustees who actually decide how money is invested.
• The majority of professional pension trustees said that lay trustees, nominated by the scheme membership, add great value to a trustee board.  Member trustees can ask ‘common sense’ questions about technical material, and often bring a deep understanding of the company and of the needs of the scheme membership.
• Decision-making on most trustee bodies tends to be by consensus. Although some trustees may be nominated by the company and some by the members, all are there to fulfil the purpose of the trust, and it is relatively rare for decisions to be put to a vote.
• Trustees clearly vary considerably in their personal attitude to risk.  Some respondents stressed that trustees tend to be cautious by nature, but others were happier embracing risk and were positive about the potential for government reforms allowing easier sharing of pension scheme surpluses.
• There was a strong view that trustee boards are at their best when they are diverse and a range of perspectives are heard around the table. Respondents warned of the danger of ‘groupthink’, where different voices are not hard and dominant opinions are not challenged.