The Pensions Ombudsman Gets Tough

The last year has seen a number of Pensions Ombudsman

determinations where trustees have been ordered to reimburse the

scheme for a breach of trust.

The role of a pension scheme trustee has always been an onerous

one. Trustees can be personally liable for any loss to the scheme.

Many schemes are run by corporate trustees which are a subsidiary

of the principal employer. This is often done to provide an extra

layer of protection for the individual directors who take the

decisions about the scheme.

The Pensions Ombudsman has power to investigate claims of

maladministration and disputes of law between pension scheme

members and trustees. The Ombudsman has power to give directions -

which are enforceable in the County Court - and binding on the

parties to the complaint.

The perils of professional qualification

In Kemp v Sims, Kemp persuaded his co-trustees

to pay a demutualisation payment of around £87,000 received

from Scottish Widows to the sponsoring employer. The Ombudsman held

this was a breach of trust as there was no power to return funds to

the employer. The trustees sought to be excused under section 61 of

the Trustee Act 1925 which protects a trustee from personal

liability provided he/she has "acted honestly and reasonably

and ought fairly to be excused for the breach of trust". The

Ombudsman found that the co-trustees had acted honestly and,

bearing in mind that Kemp was the main point of contact for the

scheme, had not acted unreasonably in relying on the information

provided by Kemp. They were granted relief under section 61.

However, Kemp was a solicitor and should have known that he could

not have paid the cheque over to the sponsoring employer. He was

therefore not relieved of his liability under section 61 and

ordered to pay £87,000 plus interest to the scheme. Kemp

appealed to the High Court, but the decision was upheld.

The perils of a "loan" to the sponsoring

employer

The sponsoring employer of the Greenup & Thompson

Limited Pension Scheme had been in financial difficulties

when it was purchased in May 2000 by Mr and Mrs Payne. In July

2000, the trustees approved a short term loan of £150,000 to

the sponsoring employer. The sponsoring employer subsequently

became insolvent. It was (and still is) a criminal offence under

section 40 of the Pensions Act 1995 for trustees to agree to lend

to the employer. However, even ignoring the illegality of the loan,

the Ombudsman found that the trustees had acted in breach of

trust.

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