Trustees and sponsors: tips for building better relationships

20 October 2021

Pension schemes thrive when there is a good relationship between the trustee board and the scheme sponsor.

For defined benefit (DB) schemes, that relationship sits at the heart of scheme governance, influencing everything from day-to-day tasks through to major discussions over scheme direction and funding.

When trustees and sponsors have clear, well articulated goals and an efficient way of working together, it makes the scheme easier to manage, streamlines cost and enables effective, timely decision-making.

As a professional trustee, I’ve worked with many different schemes and seen a variety of different approaches to trustee and sponsor relations. The best collaborations are those where the trustee board is willing to listen to and understand what the employer wants to achieve, and vice versa.

While trustees run the scheme, sponsors are also financially and morally involved. They must pay for the benefits the scheme offers, and will often also feel responsible for ensuring their employees have a secure retirement. Recognising and respecting both these factors is important in balancing sponsors’ responsibilities and trustees’ accountability for the scheme.

There are many circumstances that can test the strength of the partnership between trustees and sponsors. These could include the pension scheme’s impact on other business objectives, the challenge of meeting deficit repair contributions, or concerns over costs.

We can often bring insights from working with other schemes that help in these situations, such as assessing whether a scheme’s costs are reasonable. We can then either negotiate better value, or offer reassurance that costs are in line with other comparable schemes.

Sharing that expertise and helping to resolve sponsors’ worries then puts us and the rest of the trustee board in a good position to discuss and resolve other concerns.

I’ve only seen a few instances where the relationship between sponsor and trustee board has broken down completely. When we’ve been appointed by the sponsor to repair a poor relationship, we’ve found that agreeing a clear schedule of work provides a concrete way forward with a common focus. That could include short-term priorities, such as signing off annual reports, as well as long-term plans.

If the worst does happen, then isolating the reason why a relationship has deteriorated is the first step to fixing it. However, it’s much easier to establish a good relationship than to recover from a communications breakdown, so building good working practices in the first instance is vital. Here are five tips for trustees:

Listen to the sponsor. Create the same relationship with the sponsor as you would with trustee colleagues. The sponsor is a major stakeholder in the scheme, and responsible for its funding. Be open to their views and opinions on how they want to fund the scheme, but also be prepared to ask searching questions.

Keep communications formal. Even if you have a relaxed style in meetings, letters and other correspondence between trustee and sponsor should meet standards expected by The Pensions Regulator. With good dialogue behind the scenes, you can be firmer and more formal in letters, as everyone already understands the scheme’s objectives.

Be clear about deadlines. Sponsors hate surprises, so keep them informed about recurring deadlines and new requirements well ahead of time. That way they can prepare documents or other information to a comfortable deadline.

Build open relationships with senior leaders. Invite senior people from the sponsor company to trustee meetings and ask senior attendees to give an update on the company. This gives trustees invaluable insights that help with decision-making and reassures CEOs or CFOs that the board is well-run.

Consistency, transparency, and predictability build trust. If sponsors know that their scheme is well run, offers good value for money, and are aware of any actions they need to take, they are more likely to trust the board to run the scheme day-to-day with little or no interference.

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