Professional Trustees are personally liable for a breach of trust regardless of whether it is deliberate, reckless, negligent or innocent. Given the size of many pension schemes, the consequences can be serious for individuals. Unsurprisingly there are some key protections in place for trustees, but they are by no means comprehensive. These protections include:

Typically, if a trustee is not found to have done anything wilfully which resulted in a financial loss to the scheme then it is likely that any actions or omissions by the Trustees will be covered by such an indemnity.

Is the employer financially strong enough to be able to cover any potential claims which might arise? In the context of pension schemes, seemingly small actions or omissions can increase liabilities by  hundreds of thousands if not millions of pounds.

Such clauses typically protect trustees from personal liability for all breaches of trust except fraud and conscious wrongdoing.

They do not protect the assets of the scheme and only offer protection against claims from beneficiaries, not third parties.

There may be a power for Trustees to take out a policy of insurance for protection.

Not all pension schemes will have a power for Trustees to take out a policy of insurance to protect themselves or the assets of the scheme. Even where there is such a power, the Trustees may not have used it because of the cost of premiums. Where there is a policy in place, the terms of the insurance will need to be checked to ensure the level of protection offered is appropriate. The policies available vary in quality considerably. Does your policy offer sufficient comfort?

On some occasions such as changing investment strategy or agreeing actuarial valuations, there will be legal requirements for trustees to obtain advice from specialist advisers. On most other occasions the decision to take advice will be entirely discretionary. Requesting appropriate advice at the appropriate time from the appropriate advisers can be an invaluable protection for the trustees. Good advisers will make Trustees aware of where they can add value and will step in to help prevent problems from arising.

Are the trustees well supported by pro-active advisers or at least confident that they know what advice they need to take from whom and when to do so? Serious problems running into millions of pounds have been caused by some advisers and insurers straying into areas, like scheme documentation and the equalisation of pension age for male and female members, in which they are not competent to advise. When looking after the best interests of members and spending scheme money on advice, it is important to maximise the value of advice obtained.

Conflicts of interest are endemic in occupational pension schemes and must be managed proactively for the protection of the members, the employer and the trustees themselves.

It is quite often the case, particularly with smaller and family-owned businesses that senior employees such as financial directors and managing directors and shareholders may also be trustees. While this may work well for the day to day running of the scheme, there will often be points when conflicts of interest arise such as negotiations over funding, the payment of dividends, the sale of assets and subsidiaries or the principal employer itself.

It is not possible for an individual to negotiate with himself, or to represent both the interests of the employer and members of the scheme effectively. Trying to do so may increase the risk of personal liability and the involvement of the Pensions Regulator. It may also provide an ideal basis for complaints to the Pensions Ombudsman about decisions which have been taken.

Having an independent professional trustee on a trustee board, able to take decisions when others are conflicted, can limit the risk of adverse consequences for members, senior employees and shareholders.

The standard expected of trustees of occupational pension schemes has increased significantly over recent years. As far back as the Pensions Act 2004 trustees were legally required to be “conversant” with their scheme documentation within six months of their appointment. However, more recently the Pensions Regulator has been paying particular attention to raising standards of trusteeship through its “21st Century Trusteeship” project.

The Pensions Regulator is also now increasingly using its powers to investigate schemes and fine trustees for non-compliance. Individual trustees are personally liable for such fines. Are the trustees comfortable with this?

Spending significant amounts of time engaging with matters related to the pension scheme can be invaluable for Trustees who want to feel comfortable that they are discharging their duties to members appropriately and protecting themselves against claims.

For company appointed trustees this could mean a significant additional burden on top of carrying out their everyday activities for the business. Using  gcTrustees  Professional Trusteeship to appointing a Trustee for them to work alongside could take some of the pressure off and free up more of their time for the business?

The composition of Trustee boards can remain reasonably static which is great for continuity and maintaining a high level of knowledge about schemes and the company within the trustee structure.

Over a long period of time and as such schemes become less relevant to the current workforce due to closure to new members and closure to accrual, trustees become older and finding replacement trustees from within the workforce can become very difficult. A minimum number of trustees (as specified in the rules) will be required to administer the Scheme. Should the company consider appointing a professional who can take a longer-term view and share knowledge with the existing trustee board before all the existing trustees retire?