In 2008 Mercer published the results of its last survey on Trustee Board Structure, Performance and Remuneration. In the intervening period the pensions industry has experienced the credit crunch, deep recession in the developed economies and continuing high levels of economic uncertainty and market volatility. In this context the complexity of the demands facing lay and professional pension scheme trustees have highlighted the need to strengthen the governance and organisation structures of pension schemes in the UK.

In this report on the results of our third Trustee Survey, we analyse and assess current governance practices, presenting market data on issues of interest to all trustees and sponsors of UK pension schemes.

Some of the key questions that Mercer consultants are discussing with clients include:

• Should trustees be paid? If so, how much, and given the heightened focus on remuneration for corporate executives, how should trustee remuneration be governed?
  
  
• What support resources should be available to trustees?
  
  
• How should trustees be selected?
  
  
• What structures should be in place to govern complex matters such as investment?
  
  
• How should trustees' performance be evaluated?

Supplemented by our own observations, point of view and client experience, Mercer anticipates that the survey findings will provide robust and up-to-date information to enable current approaches to be evaluated in the light of market practice.

We are very grateful to the 119 participants in our survey for taking time to complete it and share with us the facts, figures and observations that have helped shape our point of view on pension scheme governance.

Key findings

Relationship with the sponsor

• Trustees adopt a variety of ways to communicate with their sponsor:
  
  – Seventy two percent of respondents invite sponsor representatives to attend meetings regularly.
  – In 68% of cases, the relationship with the sponsor is informally managed and led by the chairman.
  – In only 18% of cases there is a joint sponsor and trustee forum which meets regularly.
  
   
• Almost half of respondents said that they carried out covenant assessment themselves and almost two-thirds of schemes monitor covenant more frequently than annually.

Performance assessment

• Performance evaluation for the chairman of trustees and for the board as a whole is carried out by 55% and 56% of schemes respectively.
  
  
• Forty nine percent of schemes carry out performance evaluation on individual trustees.
  
  
• The overall picture is one of less evaluation being carried out in 2010 than in 2008, when 75% of trustee boards carried out some evaluation.
  
  
• Performance evaluation is largely carried out by the trustees themselves.

Trustee remuneration

• Thirty seven percent of schemes pay some or all of their non-professional trustees and almost half of schemes pay their chairman, with the median fee for the latter being £30,000 per annum.
  
  
• In 5% of boards with active member trustees such trustees receive remuneration.
  
  
• In all but one case, remuneration is not linked to performance.

Board composition

• Nearly half of schemes now apply some degree of selection in the member-nominated trustee (MNT) process, valuing competence over representation in recognition of the demands of the role.

Trustee board support

• Sixteen percent of respondents have a dedicated executive team to support the trustees and a further 60% of schemes rely on pensions consultants to provide some secretarial and management support.
  
  
• Two-thirds of schemes share their support resource with the sponsor.
  
  
• Almost half of schemes rely on consultants or other support to drive and prepare the agenda for meetings. In only 20% of cases is the agenda set collectively by the trustees, driven by the trustees’ business plan.

Decision making

• In areas where trustees are less confident in their decision-making, the prime contributory factor was a gap in skills and knowledge.
  
  
• Ninety percent of respondents said that they now have a conflict of interest policy in place, an increase from 80% in 2008.
  

 Request your copy of Mercer's 2010 Trustee survey results