Trustee Board, Is There Still Room for Lay Trustees?

16th April, 2024

  • Introduction to Trustee Responsibilities

    Acting as a trustee involves significant legal responsibility. The key duties of trustees are:

    • Act in line with the trust deed and rules.
    • Act prudently, responsibly, and honestly.
    • Act in the best interests of the beneficiaries.
    • Act impartially.

    Usually there is a Trustee Board collectively tasked with the duties above. In the past many of those who sat on the Trustee Board would have been lay trustees.

    The Role of Lay Trustees

    A lay trustee is an individual who accepts the role of trustee on a non-professional basis. They may not have formal training or expertise in trustee matters but bring their personal perspective and familiarity with the board’s dynamic.

    Despite the group nature of decision-making, lay trustees should be made aware that they face personal and unlimited liability if found guilty of wrongful acts, mismanagement, or negligence, along with their fellow board members.

    This responsibility along with the burgeoning regulatory and legislative hoops to negotiate has seen schemes struggle to find lay trustees who feel confident enough to fulfil all duties which fall upon them.

    Lay trustees usually represent either the workforce, membership or they have been nominated by the sponsor. All of the above can give the members/beneficiaries reassurance that their best interests will indeed be at the heart of all trustees decisions.

    The emphasis on diversity is in some respects addressed by lay trustees representing a unique perspective from the sponsor or indeed any professional trustees sitting on the board.

    Transitioning to Professional Trustees

    However, many new pension legislation changes and governance requirements can question the professionalism of the trustee board, increasing the risk of scrutiny and further discouraging involvement by lay trustees.

    Therefore, the question arises whether lay trustees still play a relevant and valuable role?

    Some schemes will definitely benefit from the historic knowledge of the scheme rules or past changes to terms and conditions which only lay trustees can provide firsthand experience about.

    However, if your lay trustees are not feeling confident or even worried and unable to form a well-rounded opinion, you may be paying more money to advisors for further explanation or training. Without full understanding the board is unable to make decisions and the effectiveness of the trustee board would need to be addressed.

    The rise of professionalism in pensions trusteeship has led an increasing trend towards appointing a professional trustee.

    A professional trustee is an individual or a company that acts as a trustee in the course of a business of being a trustee. They are held to a higher standard of care and expertise. The Pensions Regulator expects more from professional trustees than from their lay counterparts and may impose heavier sanctions for underperformance.

    Balancing Lay and Professional Trustees

    The choice to appoint a professional trustee however is not a straight swap. There are several ways a professional trustee can support your trustee board with or without lay trustees.

    Professional trustees can act in either non-executive, chair, or sole capacity, depending on what you, as a sponsor require for your particular pension scheme. Dalriada, as a leading firm of independent, professional trustees offers all of these or can even look after the trusteeship, governance, administration and all daily operations under the newly introduced service Dalriada.Together.

    A sole trustee appointment means a professional trusteeship firm takes over all trusteeship duties. Sometimes the previous trustee board are retained as a committee for a period of time to transition any relevant knowledge to the sole trustee firm, before retiring their responsibilities completely.

    A non-executive or chair of trustees sit alongside the existing trustee board and bring a different type of support to the scheme and their fellow trustees.

    The Importance of a Diverse and Engaged Trustee Board

    Non-executive trustees can act alongside existing trustees, supplementing, and broadening their knowledge, allowing appropriate challenge of advisers and ensuring that the trustee board is trustee led, rather than adviser led.

    The Chair of Trustees holds a pivotal role, leading the board in achieving company goals. They preside over board meetings, facilitate decision making and maintain efficient processes.

    A professional trustee is likely to have sat through many trustee meetings, with all different make ups of trustee board, have experience of different advisers and generally be adept at managing different professional relationships as they steer their schemes through various projects, legislative changes, or member events.

    The value of a professional trustee lies in this experience, and it would be reasonable to look to them to help ensure the entire board is up to speed, able to voice their opinion appropriately and is comfortable with any decisions made.

    While professional trustee appointments are on the rise, I don’t believe it means that lay trustees are becoming irrelevant or indeed are no longer needed.

    A diverse, well rounded and engaged trustee board, whatever its makeup, is the best outcome for any scheme. If you do have lay trustees, the question is not whether they deserve to be there. The question is whether they have the correct support and resources to carry out their role to the best of their ability. The answer to providing it should lie, at least in part, with the professional trustee representatives who sit alongside them.

    What’s next?

    To delve further into the intricate dynamics of trustee responsibilities and understand the role of lay trustees, explore our Chair Trustee service page. Gain deeper insights into the evolving landscape of trustee governance, and discover how the support of a professional trustee can optimise your scheme’s strategic direction.

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    • Published byJana Sicak

      Jana is currently a Support Professional Trustee at Dalriada, bringing her extensive experience in pension management to the role.  Prior to joining Dalriada, Jana served as an in-house Secretary to Trustees for a public sector open Defined Benefit (DB) scheme, where...

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