Deputy Pensions Ombudsman Rules Trustees Personally Liable For Breach Of Trust

The Deputy Pensions Ombudsman has held that two trustees were not protected by the exoneration and indemnity provisions in the Scheme Trust Deed and Rules and were personally liable for payments made in breach of trust. The Ombudsman ordered payment of almost £200,000 but, by the time interest and tax charges are added, the damages will be substantially more. The case highlights the personal liability that trustees can face and the need for trustees to carefully consider the protections they have against liability.

Bridge Trustees Ltd (PO-763): Trustee Liability

The Pilkington's Tiles Pension Scheme ("the Scheme") had both defined benefit (DB) and defined contribution (DC) sections. There were four trustees; Mr Burrows and Mr Lloyd, both of whom were directors of Pilkington's Tiles Limited ("Pilkington"), and Mrs Hirst and Mr Gratrix, who were member-nominated trustees.

Scheme Rules

Under Scheme rule 5.6, excess employer DC contributions, resulting from early leavers whose benefits had not vested, should be held in a general reserve and "applied by the trustees as the principal employer shall from time to time direct to pay the costs and expenses of the scheme and/or to reduce the amount of the contributions which would otherwise be required from the employers..."

The trustees were granted protection by an indemnity clause under Scheme rule 14.20. However this protection did not extend where there was fraud or "deliberate disregard of the interests of the beneficiaries" by the trustees.

Facts

In November 2009, Mr Harper of Capita, the administrators of the Scheme, informed Mr Burrows that the Scheme had excess employer DC contributions of £198,647.50. This amount was to be transferred to the Scheme's trustees, net of Capita's fees, leaving a total of £187,191.25. On 24 December 2009, Capita transferred some £177,000 to the trustees of the Scheme and on the same day Mr Burrows and Mr Lloyd authorised payment of £187,191.25 from the trustees' bank account to Pilkington's account.

A trustee meeting was held on 12 January 2010. The trustees agreed to the company's request for a loan of £205,000 to pay the 2008 PPF levy, which it otherwise could not afford. Mr Burrows and Mr Lloyds did not mention the December transfer to the other two trustees.

In March 2010, Mr Burrows and Mr Lloyd authorised further payments representing excess employer contributions from the Scheme to Pilkington's of £5,819.68. Mr Burrows and Mr Lloyd, therefore, had...