Half of UK pension schemes now have a Professional Trustee, a third of those have a Sole Trustee as market boom set to continue
Pensions & benefits Professional trustee selection DB pensions Policy & regulation
In their latest analysis of the Professional Trustee (PT) market, LCP highlights that in the year to June 2023 there has been a 12% growth in UK schemes with a Professional Trustee. This means that 50% of schemes now have a professional trustee; of those 20% have a Sole Trustee arrangement in place.
This year has also seen unprecedented consolidation amongst some of the largest players in the PT market. This has resulted in a higher concentration of scheme trustee appointments amongst a smaller pool of key players.
The majority of the 13 firms in the Professional Trustee market surveyed in LCP’s latest Sole Mates/Soul Mates report, have seen strong growth in the number of appointments over the last year. Key drivers for this boom are the increasing regulatory burden on schemes, drives for efficiencies often achieved through sole trustee arrangements and succession planning. On the latter this is because of the expectation that employers will struggle to find employees who are willing and able to meet the increasing demands of trusteeship.
Despite the decline in the DB market and the government drive for scheme consolidation, the report highlights there is still significant room for the PT market to grow as PT firms evolve their approaches and service models. LCP believe this is why there has been a considerable interest of Private Equity (PE) investments in the professional trustee market over recent years.
In line with the DWP’s recent call for evidence on Trustee skills, PT firms are increasingly expanding their remit and services into wider areas by hiring directors with backgrounds in a number of different areas such as investment, covenant and insurance de-risking. 62% of respondents hired trustees with insurance de-risking expertise reflecting the shift in funding levels over the year and the increasing pace of schemes moving to insurance solutions. Over half of the respondents have in-house covenant expertise and will actively contribute to covenant reviews and discussions.
Looking into the future, LCP expect the PT and Sole Trustee market to continue to grow at a rapid pace. The Pensions Regulator is expected to set out its expectations of trustees in the upcoming General Code, Funding Code and their response to the Mansion House speeches. With that in mind we expect increasing regulatory oversight of Professional Trustees and potentially a more stringent accreditation regime with an aim to professionalise the PT industry further.
Nathalie Sims, Partner at LCP, and author of Sole Mates commented: “In a rapidly changing landscape Professional Trustee firms have actively evolved their approaches to support Pension Schemes and sponsors. As more schemes are taking an innovative approach to end game planning as a result of better funding levels, PTs are able to support these complex processes and provide the expertise and experience needed. We expect the market to remain buoyant for a number of years to come.”
David Fairs, Partner at LCP, added: “It will be interesting to see whether consolidation of Professional Trustee firms provokes a regulatory response, as a relatively small number of firms will potentially have significant influence over governance and operational standards of a significant number of retirement pots, as well as responsibility for investment strategy.”