Pension schemes have a committee of ‘lay’ trustees who have overall governance responsibility of the scheme. These lay trustees can be appointed by management, or elected by scheme members. So, a committee of lay trustees might include managing directors, financial directors and eminent scheme members.

Importantly, a lay trustee is a trustee in their own time and not in a full-time capacity. This in itself can raise its own problems. In addition to the commitment required, which is not always possible with a full-time job, there is the problem of conflicts of interest within a committee, the issue of vested interest (with certain members also being beneficiaries of the scheme) and the changing requirements of pension schemes.

As a result, many companies are now supplementing their lay committee by calling on independent trustees. Working as an independent agent, these trustees are able to mitigate any potential conflict and dedicate the equivalent of full-time effort to the scheme.

Pensions are changing. In the face of the current crisis, there is an increased emphasis on governance. As work for a range of schemes, their expertise is market-led and therefore can be easily suited to each individual scheme. With the UK pensions crisis rumbling and the possibility of extra benefit bills running into hundreds of billions of pounds, such independent and impartial advice could be extremely beneficial for schemes looking to keep their heads above water.

What do I need to know?

By statute, all trustees fulfilling particular legislative conditions must be listed under the Independent Trustee Register if you or your pension scheme has chosen to seek professional counsel from an independent trustee it is essential that you check they are on this list. This way you ensure that the trustee elected does the job according to the standards they are required, by legislation, to meet.

They should:

• Be fully up to date with all pensions issues, as well as any changes in legislation which affect pension schemes
• Work primarily with the interest of scheme members in mind
• Demonstrate an appropriate level of expert knowledge and understanding
• Be alert to cost and risk control
• Be able to identify the appropriate sources of professional advice in terms of compliance with legislation and scheme administration

Independent trustees can act alongside an existing committee of lay trustees, or take over the role of sole trustee. It is important to consider the advantages and disadvantages of each route for the particular scheme. What are the benefits?

The benefits will depend to some extent on the role the trustee will take: it will be the company’s decision whether they are being employed into an executive or supporting role. Either way, however, there are some benefits that remain universal. These are:

• Impartiality: where conflicts of interest arise, it is the trustee’s job to mitigate and to ensure that all decisions are made on the basis of the members’ benefits.
• Transparency: due to the impartiality of the trustee, issues such as scheme investment or agreeing on the employer’s and members’ contribution rates are made with the advancement of the scheme in mind.
• Confidence: with a professional independent agent acting according to regulations set out by the Pensions Regulator, members can rest assured that their schemes are being governed fairly, professionally and according to best practice in governance.

Independent Trustees A Changing Role

It was quite usual not so long ago to recruit independent trustees on the nod-and-a-wink recommendation of a friendly pension fund professional. But not now. Several major scandals during the latter-half of the 20th century helped change the pensions landscape forever and shaped the role of the trustee that we see today.

As a consequence of these scandals – the Robert Maxwell scandal of 1991 is probably the most famous example in the UK and companies, facing a pensions black hole because of poorer-than-expected investment returns, being unable to pay employees what they once promised, all funds now paid into a medium or large companys pension scheme must be held in trust.

This legal requirement not only prevents business owners helping themselves to pension scheme money whenever they want, but it also stops the pension fund counting as a business asset which might then be at risk if the company fails.

Small companies can also employ trusts to look after their pension schemes. But they dont have to if they dont wish it. Instead, they can choose to run a GPP, a group money-purchase personal pension scheme, which requires a pensions adviser and an administrator only and not the appointment of independent trustees.

The role of the trust is simple, to administer and protect the company pension fund and thus enable it to grow in value. It is independent of the company and the pinnacle of a triangle, with employer and employees forming the other two points.

All sides of the triangle need to work together to successfully achieve the pension funds primary goal, which is to ensure money moves from employee to employer pension scheme and then eventually back again to the beneficiary, the retired employee.

The job of the trustee is a demanding one at the best of times and now requires a degree of knowledge and understanding unknown in the past. The trustee can be either a lay person, a paid professional, or even a company – known as a corporate trustee. The corporate trustee will usually be the director, with the same responsibilities as an individual trustee. The pension schemes employer can also be the corporate trustee.

Often an individual trustee will be just one of a number of trustees looking after the pension scheme. If that is the case, the group is known as the board of trustees. Anyone is eligible to become a trustee provided they fulfil a few basic requirements.

Trustees must be aged 18 or over and be legally capable of holding property. They cannot have a conviction for an offence involving dishonesty or deception (unless it is spent) or be an undischarged bankrupt or have voluntary agreements with creditors.

Independent trustees must not be disqualified from acting as a company director, or have property in Scotland covered by a sequestration order. They cannot be a trustee if they are a company which already has one of its directors disqualified from being a trustee. The same applies with a Scottish partnership where any of the partners have been disqualified from being a trustee.