Liabilities And Protections: What Every Pension Scheme Trustee Should Know

Trustees of pension schemes need to understand what protections are available to them if something goes wrong. How can they protect themselves from the results of actions brought by disgruntled members, beneficiaries, potential beneficiaries, or a dissatisfied employer?

Our pensions experts consider the levels of protection that can be available to a trustee, looking at the position for both individual trustees and the directors of a corporate trustee, and summarise what trustees need to do to make sure their position is as secure it as it can be.

KEY ACTION POINTS FOR TRUSTEES

Check what the scheme rules say Scheme rules often include provisions which protect the trustees (or directors of a corporate trustee) from liability. Is there any insurance in place? Trustees may have the benefit of an insurance policy. Individual or corporate trustee? The structure of a corporate trustee provides an additional layer of protection. Are there any protections available under general law? In specific circumstances, trustees may be able to take advantage of protections set out in statute. Good governance Ensuring good governance procedures are in place will reduce the risk of successful claims. Why should trustees be concerned?

Trustees risk unlimited personal liability under trust law for breach of trust. Additionally, fines can be imposed on trustees by the Pensions Regulator under the Pensions Act 1995 and the Pensions Act 2004. The Pensions Regulator has the power to fine directors of corporate trustees, not just the corporate trustee itself.

PROTECTIONS IN THE RULES

Where to find trustee protection in the scheme rules?

The trustee protection provisions are generally in the "trust deed", which will often be the first part of the trust deed and rules.

How much protection

The detail of the relevant rule(s) will dictate what kind of protection it gives. Many rules will include:

An "exoneration rule"

Almost all pension scheme rules include a rule which says the scheme trustees are not held personally responsible ("not liable") if they make a mistake; the scheme bears any loss that results from the trustees' actions.

The rule may say it exonerates trustees from actions "properly taken" or "taken in the course of exercising their duties as trustees". Although this seems reasonable, questions could arise around whether an action that results in loss was indeed "properly taken".

If the rule says nothing about actions "properly taken" or similar wording, but simply that it exonerates the trustees from the results of all their actions "excluding fraud and wilful default" that's a better rule for a trustee, because it doesn't beg the question whether the action was "properly taken".

The law will not give protection to a trustee who deliberately acts wrongly. Even if the rule doesn't say "excluding fraud and wilful default" the Court would not give protection ("exoneration") to a trustee to relieve them of responsibility for their own fraud or deliberate wrongdoing.

The rule may provide more limited protection for professional trustees, for example not giving them an exoneration for negligence.

An Indemnity

Many pension scheme rules include, in addition to an exoneration, an indemnity from the principal...