On 21 January 2021 the Institute and Faculty of Actuaries (“IFoA”) published a report entitled Pension Trustee Decision Making. The report examines the pressures and difficulties faced by trustees in their decision making process, and the findings will likely be of interest to trustees, their advisors and fund managers. It can be accessed here.

For trustees, some of the key recommendations include:

• Allocating a “Devil’s advocate” role to at least one member of the group to thoroughly challenge the reasoning behind decisions;
• Allowing the board to give anonymised individual responses to questions before sharing these with the group (known as the “Delphi” technique);
• Adopting a formal voting system with secret ballots;
• Establishing a procedure for anonymous feedback to the Chair from both trustees and advisors; and
• Carrying out training to address biases in decision making.

These findings stem from the research carried out by the IFoA. This found that some trustees reported a routine lack of any disagreement in meetings, which the report suggests could discourage worthwhile but controversial opinions from being raised. The research also shows that this “culture of consensus” can be intensified when the board is demographically homogeneous. In particular, anonymous feedback to the Chair may help to counter situations where the opinion of the Chair has a significant influence on trustee behaviour.

The report also acknowledges that trustees often bear a significant “cognitive load” when preparing for meetings, which can cloud their capacity to consider alternative points of view. Additionally, it is suggested that trustees can be unduly reliant on advice, which is likely due to a heightened awareness of potential personal liability. The effect of this is that trustees can fail to consider the full range of relevant options, and the recommendations highlight what advisors and managers can do to offset this risk, such as presenting information to trustees in a user friendly manner and ensuring that trustees have access to the facts that any advice is based upon.

Trustees may recognise some of the anecdotes from the report in their own experiences and can perhaps take some comfort in knowing that many decision-making difficulties are faced by others across the industry. The recommendations presented may help to mitigate these common flaws in decision making on trustee boards, although we would not be surprised if the extent to which they are adopted generates significant debate in its own right before any decisions are taken!