Managing Conflicts with Sponsoring Employers

As The Pensions Regulator (TPR) rolls out its professional trustee engagement programme, one of the key areas under review is how trustees, particularly those appointed by sponsoring employers, manage conflicts of interest. While this initiative is still at a ‘fact-finding’ stage, the spotlight it places on sponsor-trustee dynamics is both timely and necessary.

Professional trustees play an essential role in maintaining robust governance, navigating regulation and, above all, protecting member interests. But when they are appointed by the very employer whose financial strength underpins the scheme, a tension can emerge. Managing this conflict is not simply good practice, it is a non-negotiable element of responsible trusteeship.

The Built-In Tension

Sponsoring employers appoint professional trustees to bring governance expertise, independence and credibility to scheme boards. But this same relationship can give rise to real or perceived conflicts of interest, especially in sensitive situations like corporate restructuring, refinancing, or scheme funding negotiations. The concern is not new and is certainly not limited to professional trustees. Lay trustees, whether employer or member-nominated, are equally exposed.

However, all trustees, professional or otherwise, must act to protect members’ interests. They must be able to act impartially, challenge constructively and make decisions that support the long-term security of benefits, even when these may not align with employer preferences.

The Risks of Poor Conflict Management

Unmanaged conflicts can compromise scheme decisions, weaken funding outcomes and erode stakeholder trust. In worst-case scenarios such as employer insolvency or M&A activity, failure to act with independence could lead to poor outcomes for members and potential personal liability for trustees.

It also risks undermining trust in the pensions system itself. Scheme members must be confident that trustees are acting in their best interests, not simply as a facilitator of corporate strategy.

Governance in Action: Best Practice Conflict Management

TPR’s General Code of Practice sets out clear expectations for identifying and managing conflicts, and professional trustees are also bound by industry accreditation standards. Good governance requires more than just compliance – it demands consistency, transparency, and a proactive mindset. Professional trustees should adhere to the following practices as standard:

Identify and Monitor Conflicts

Trustees must continuously assess for the emergence of actual, potential or perceived conflicts and create a culture of early and ongoing recognition. This includes keeping a live register of conflicts which records all declarations of trustees’ personal and financial interests that is regularly reviewed and updated.

Know what Steps to Take should a Conflict or Potential Conflict Arise

Every trustee firm should have a written conflicts policy tailored to the scheme’s complexity, setting out how conflicts are identified, disclosed and addressed.

Proportionate Management

Depending on the nature of the conflict, responses may range from disclosure to recusal or seeking independent advice.

Promote Balanced Board Composition

On traditional boards, a mix of employer-nominated, member-nominated and independent trustees helps guard against groupthink or undue influence. For professional corporate sole trustee (PCST) models, a second director and supporting team provides balance and scrutiny, as well as diversity of thought. In either case, accessing the experience, expertise and fresh thinking from peers within the business is important, alongside the embedding of rigorous internal challenge and peer review.

Transparent Documentation

Minutes should clearly reflect how conflicts are considered and managed, reinforcing accountability.

Use of Subcommittees or External Input

For high-stakes or contentious matters, subcommittees of unconflicted trustees or external advisers can bring additional rigour. In PCST models, a second appointed director and clear escalation processes for unresolved and contentious decisions should be in place.

Regular Training

Trustees must receive ongoing education to build awareness and develop skills in recognising and addressing conflicts.

The Role of Professionals

Professional trustees bring not only technical expertise but also structure and ethical resilience. They have the skills to manage difficult conversations, push back respectfully against sponsors, and remain focused on their fiduciary role – even in the face of pressure.

That professionalism also includes knowing when to walk away. A trustee firm may need to decline an appointment if independence cannot be guaranteed, or to step down if conflicts become unmanageable or where undue pressure is being applied by the sponsor. This is a difficult decision to make, particularly where an individual trustee’s income is linked directly to their appointments and associated revenue. Equally, a sponsor may themselves terminate an appointment due to disagreements over approach. In such instances, the departing trustee should notify the regulator and ensure that any successor is fully briefed on the circumstances.

As one experienced colleague put it: “One of my proudest moments is getting sacked by a sponsor—for doing the right thing.”

A Broader Duty of Care

PCST arrangements have grown in popularity for their streamlined governance. But without a multi-party board to provide balance, firms must embed challenge within their own processes. Peer review, dual-decision makers, escalation procedures and professional oversight are key.

Equally, traditional trustee boards benefit from the presence of professional trustees who can ensure that the group remains member-focused and proactive in decision-making.

Regardless of model, the goal remains the same: to safeguard members’ pensions with independence and ethical discipline.

Conclusion

Conflicts of interest are an unavoidable aspect of pension governance. But with the right policies, culture and professional standards, they can be managed – if not entirely eliminated. The professional trustee’s role is to uphold the scheme’s integrity, protect member outcomes and bring confident independence to difficult decisions.

Effective conflict management is not a regulatory box-tick, it’s a marker of trustworthiness, professionalism and commitment to good member outcomes.

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