Issued on: 8 October 2010
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Sarah Smart, Chair of the Trustee at The Pensions Trust contributes to FT SchemeXpert Website on a monthly basis. Below is Sarah's second article 'BBC trustees should leave emotion in the green room'. |
Last week we heard of the reaction by the trustees of the BBC pension scheme to the proposals for changes to benefits put forward by the sponsor. This is clearly a difficult time for them, but does an emotional reaction actually help them to achieve the best result for the members?
I have been through quite a few benefit change processes in my time as a trustee – probably about two a year on average for the last five years. There is no doubt that they are fraught with difficulties and generally a very tense time for trustees. And sometimes it can be difficult for trustees and employers not to become entrenched in ‘them and us’ positions and to avoid things becoming emotional. However, the best way forward for the members is, in my view, to try and keep emotion out of things as much as possible.
I have always maintained that a good foundation for any well run pension scheme should be an open and honest dialogue between the trustees and the sponsor. Establishing and maintaining this relationship is one of the key roles of the Chair of the trustees. Having such a relationship in place does not always mean that the sponsor will tell the trustees of their plans for the pension scheme before they become public, but it gives the trustees the best possible chance of this happening.
Generally when there are changes to be made to the pension scheme this is achieved through a process of negotiation with the scheme trustees. This is usually because the sponsor is seeking to implement the changes through an amendment to the trust deed and rules, which the trustees have to agree to. There are two key things for the trustees to keep in mind when considering any proposals from the sponsor:
• They must first and foremost fulfil their statutory duty, which is to act in the best financial interests of the members and beneficiaries. This can mean sacrificing the possibility of future benefit accrual to ensure the security of past benefits. This is never something that sits comfortably, and can be particularly problematic when the current members (mistakenly) see the trustees as responsible for safeguarding the future of the pension scheme.
• They must remember that the sponsor has different duties – to maximise shareholder or stakeholder value – and to them this responsibility is just as important as the responsibility the trustees have to the members. I have often found this a difficult position to be in when the sponsor is a charity and any funding I secure for the pension scheme is taking money away from the charitable aims of the organisation. But I have to fulfil my duties. Similarly, the BBC must have the interests of the license payer in the forefront of their minds, and the trustees of the pension scheme should accept and respect this position.
Having said all that, we are all human and emotional beings, and it is very difficult to quell the emotional reaction completely. In some cases emotional trustees and a calm Chair of the trustees can be a very powerful combination. A strong counterproposal put forward without emotion, but with the knowledge of the strength of feeling of the trustees, should strike the sponsor as a very good deal.