Less than a third (29 per cent) of pension trustee boards currently use some form of external validation to independently review their effectiveness, despite concerns over the increasing risks facing trustees, according to research from Willis Towers Watson.

The firm’s Trustee Governance Survey revealed that only half of trustee boards currently review their effectiveness annually, despite “looming” requirements for schemes to do so, as outlined in The Pensions Regulator’s proposed new consolidated code, which is currently under consultation.

Willis Towers Watson emphasised that reviewing the effectiveness of the trustee board and wider governance is a journey "well worth taking", stressing that it is better to start this process now, rather than wait for the proposed code to make it mandatory.

The research also revealed that almost three-quarters (73 per cent) of respondents thought that the role of the trustee has significantly more risk attached to it now, while 65 per cent say their role as trustee has become more difficult.

It is perhaps unsurprising then that two-thirds of schemes also stated that it is becoming harder to find members to act as a trustee.

However, whilst seven in 10 trustees were aware that a lack of diversity a key challenge facing the industry, "only a minority" (21 per cent) of schemes stated that they are actively targeting it as a priority that should be addressed over the next three years.

Furthermore, whilst 54 per cent stated that their own trustee board is sufficiently diverse in terms of life experience, just 28 per cent could say the same for diversity by age, gender and ethnicity.

Concerns around the risks and difficulty associated with the trustee role have also emphasised the impact that independent professional trustees (IPT) have on governance and effective decision making, with 88 per cent of schemes with an IPT agreeing that all schemes should have one.

The evidence also suggested that this trend is likely to continue, with nearly three-quarters of corporate sponsors predicting that the number of IPTs to continue to grow, whilst a third expect trustee boards to be replaced by a sole trustee, with one in 10 schemes having reviewed the sole trustee model of governance within the last 12 months.

Willis Towers Watson pensions governance lead, Jenny Gibbons, commented: “It is clear that the presence of an IPT reduces other trustees’ concerns about the complexity and risk of running DB and DC schemes due to their expertise and knowledge of other schemes and market practices.”

The report also found some broader positives, with around 80 per cent of trustees reporting good engagement in meetings and appropriate contingency plans.

Furthermore, over 90 per cent of trustees were comfortable with the responsibilities of the trustee board to urgent issues over the recent challenging period, which acted as a real-life test of continuity planning.

In addition to this, it suggested that technology is “beginning to come of age for pension scheme trustee boards”, with 85 per cent of respondents feeling well supported by technology both during and in-between meetings amid the pandemic.

It also found evidence that the use of technology is shifting, with 54 per cent using it for ‘monitoring and tracking’, compared to 56 per cent using it for automated triggers that aid decision making; a forward-looking approach.

“Capturing this technology momentum in the way schemes are run in a post-lockdown world will be key to agile and effective decision-making which, after all, is at the heart of what good governance is striving for," Gibbons argued.

Looking ahead, the research suggested that the biggest change to governance would be around environmental, social and governance factors, with 44 per cent of participants predicting an increased focus in this area.

Commenting on the findings, Gibbons said: “Trustees hoping for a breather after the challenges of 2020 and early 2021, and even those whose DB funding levels have seen sustained improvements, will in fact continue to have to work apace with new roles, structures and improvements to assimilate under the new combined code.

“The trick for trustees and sponsors will be to make those improvements work for them; to bring about the best outcomes for their scheme’s specific structures and requirements.”

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