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Survey Report

Trustee Governance Survey 2023

May 26, 2023

WTW surveyed 140 trustees, pension managers and other stakeholders during April 2023 on the future of governance of trust-based pension schemes and how the role of the trustee is evolving in the current environment.
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A year is a long time in the world of pensions. 2022 saw inflation continue to rise and in response bond yields rose, with the Bank of England tightening monetary policy. In September, a turbulent market reaction to the ‘mini-Budget’ led to government bond yields increasing sharply, which led to rapid declines in the value of LDI portfolios for some pension schemes. As the market tumult eased and schemes regrouped, governance has been a key area of reflection. Then for many schemes the aftermath of the LDI crisis saw funding positions improve and the road to settlement is that much shorter, with preparation for buyout offering its own governance challenges.

72% of schemes say they are aiming to be either ‘best in class’ or ‘better than many schemes’ when it comes to governance

Alongside these shifts, pension schemes started to plan for a major change in governance expectations: the Pensions Regulator’s new General code of practice. Consulted on in March 2021 and due to be published imminently, the new code looks to consolidate 10 of the 15 existing codes of practice. It also features new elements, including climate change and stewardship, alongside greater content on cyber controls and the maintenance of IT systems and risk management controls.

Alongside the General Code, we are also seeing other governance requirements related to schemes’ investment strategies. In the UK, disclosures per the Task Force for Climate-Related Financial Disclosures (TCFD) framework became mandatory for the largest pension schemes (£5 billion or more of assets) in October 2021. One year later (October 2022) this came into force for schemes with £1 billion of assets or more and enhanced the climate reporting requirements for all schemes. In addition, the Department of Work and Pensions issued Guidance on Reporting on Stewardship (June 2022). This raises expectations on trustees’ roles in stewardship activities, ideally covering both voting and engagement policies and further encourages focus on ESG.

30% of schemes have taken action on each of the Regulators’ top three expectations so far

Hence, with the increasing demands of scheme governance seen in recent years, the work of trustees has never looked so complex and there remain concerns about the ability to find suitable trustees, which is compounded by concerns Boards are not sufficiently diverse. In response, schemes are increasingly looking to take steps to address trustee recruitment issues.

Together this represents a challenging agenda for schemes and Trustee Boards. Against this backdrop, WTW surveyed 140 trustees, pension managers and other stakeholders during April 2023 on the future of governance of trust-based pension schemes and how the role of the trustee is evolving in the current environment.

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