Publications

Bulletin 1 Summer 1992

A New Independent Trustee Company

BESTrustees is an odd name for a company - is it a Business Expansion Scheme? A number of people have asked this question in the past few months and the answer is very definitely no. BEST comes from the name of our parent company, British Empire Securities and General Trust plc. British Empire was formed in 1889, is on authorised investment trust quoted on the London Stock Exchange and has investments valued at over £90 million. BESTrustees therefore not only has the backing of its own six-figure capital base, but also the support of a parent company of significant size.

Our Philosophy

BESTrustees was formed to provide strong-minded, experienced professionals to act as independent trustees. We are there not only to ensure that the scheme's assets are properly safeguarded, but also to act as arbiters.

We already act for a number of pension fund clients strengthening their Trustee Board with independent advice. For other clients we have given advice on such matters as the allocation of any surplus.

In the ever-changing world of pensions, understandably many trustees have difficulty both with the sheer complexity of pensions arrangements and with issues of independence. It is, in fact, very hard for many to separate their own views from that of their employer, the sponsoring company, and from that which they should take as trustees.

As experienced trustees ourselves, we are very aware of the multitude of problems trustees face. The professional team at BESTrustees is not only completely independent, but also highly experienced in the pensions and investment arenas.

A Warm Welcome

We were delighted that the launch of BESTrustees at the end of February received such an enthusiastic response both from our colleagues in the pensions industry and from the press.

Many of those we have been in contact with responded, with comments such as; “if opportunities should arise we will know where to go" and "I will certainly bring it to the attention of those in need of an independent trustee".

What We Can Expect Post–Maxwell

The Maxwell affair has generated a great deal of interest in the role of the trustee and many commentators believe that independent trustees should be appointed as a matter of best practice. Despite all this, the present evidence available suggests that, as yet, very few pension funds have appointed independent trustees. In the National Association of Pension Funds 1991 annual survey, conducted before the death of Robert Maxwell, some 14% of funds had at least one independent individual trustee and 13% had an independent corporate trustee.

A much smaller study carried out recently by the accountancy firm, Clark Whitehill, showed that only 3% of the schemes they surveyed had an independent professional trustee. Naturally, at BESTrustees, we firmly believe that these figures should and will change in the next few years and that the appointment of an independent trustee will be seen as one of the ways to give beneficiaries added protection.

The Social Security Committee Report Recommends Properly Trained and Experienced Trustees

It has long been the recommendation of the NAPF that trustee boards should represent a balance of interests between the employer and the scheme beneficiaries, with an independent trustee, where appropriate. In a submission to the Occupational Pensions Board in 1988, the NAPF's recommendation was that "the appointment of independent trustees and of trustees representing employees is generally desirable".

The report of the House of Commons Social Security Committee in March was strangely silent on the subject of independent trustees, whilst referring obliquely to their existence. They recommend that "trustees who find themselves in the minority on a trust board should have the right to seek independent expert advice' They also recommend that "no transaction with the employer, individual trustees or persons connected with them is permitted unless authorised by the majority of trustees in advance".

They did, however, recommend that all trustees be properly trained and experienced and that the OPB should monitor the appointment of trustees and, where necessary, use their power of veto. They also proposed greater and more timely disclosure requirements and suggested that trustees obligations to maintain proper records and internal controls should be codified. Companies must start to realise the substantial additional burdens that will be placed on their employees and directors who are trustees and will appreciate the benefits of a professional trustee as an expert to work with them and advise them.

Pension Assets–The Major Part of an Individual’s Wealth

The House of Commons Social Security Committee quoted some very interesting statistics showing just how large the assets of UK pension funds have become. For the past decade, accrued occupational pension scheme assets have represented

proposed greater and more approximately a quarter of total personal sector wealth, up from about a sixth of total wealth in the late Seventies.

The largest single component of personal sector wealth is the home, but in 1989 accrued pension scheme assets represented about 70% of the wealth stored in housing, net of mortgages. Figures for the end of 1991 will not be available for

Some time but, following the collapse in the property market, they are likely to show that private sector wealth, held as accrued occupational pension assets, is worth about the same as housing, net of mortgages. Yet how many individuals would name their pension rights as their largest single asset?

A more widespread appreciation of this fact would further reinforce the demand for independent trustees.

Independent Trusteeship

A trustee's duties are many and varied and whilst he is not deemed to be an expert he is required to obtain and consider professional advice in those areas outside his experience in order to act impartially towards all the scheme beneficiaries. The beneficiaries include not only active scheme members but also pensioners and deferred pensioners. Clearly, a trustee's duties present many difficulties when the trustee involved is an employee of the company and may also be one of its directors.

What is an independent trustee and why are they an important part of today's trustee body? The independent trustee, like an dependent non-executive director, will bring specific skills and expertise and an unbiased, dispassionate view to make sure the benefit promises within the Trust Deed and Rules are interpreted fairly. In the increasingly demanding pensions environment, independence and good stewardship is now a major issue. Many pensions professionals are looking closely at the role of the trustee.

Recently, the Institutional Fund Managers' Association said in a letter to the Financial Times:

"We believe that it is essential to strengthen the independence and powers of trustees, for example by adding to their number either suitably qualified individuals who would perform a function equivalent to that of non-executive directors or a trust company which might also act as custodian"

Obviously BESTrustees would agree with them.