Thursday, 24 May 2018

    Trusteeship explained: Your role as trustee

    What it means to be a trustee, your duties and what is expected of you

    Trusteeship explained

    Trusteeship explained

    ‘Trustee’ is a legal term for a holder of property on behalf of a beneficiary and can be individuals or companies that hold a pension scheme’s assets for the benefit of members. Trustees are normally appointed by the employer or by existing trustees, and act independently of the employer. The Pensions Act 2004 introduced a requirement for trustees to ensure that at least one-third of trustees are member-nominated trustees (MNTs). The Act also reserved the power for this to be increased at some point in the future to 50% but it is uncertain whether the Government will exercise this power.

    Types of trustee

    The board of trustees comprises MNTs, employer nominated trustees (ENTs) and, increasingly commonly, independent trustees. All have a duty to act:

    ◆ in line with the trust deed and rules

    ◆ in the best interests of scheme beneficiaries

    ◆ impartially

    ◆ prudently, responsibly and honestly

    ◆ in accordance with their powers (such as investment strategy)

    ◆ and exercise discretionary powers (deciding who gets benefits).

    The trust deed and scheme rules define the role and powers of trustees. The trust deed normally determines the make up of the board. The Pensions Regulator or courts can take powers from the board or strengthen it under certain circumstances.

    MNTs must be nominated by at least the active and pensioner members of the scheme and selected by some or all of the members. Trustees will have the flexibility to design arrangements for nomination and selection that best suit their scheme, within basic requirements. The Regulator details these requirements in a code of practice.

    The length of the term an MNT serves is determined by the Trust Deed. Scheme members may be invited to nominate themselves, or possibly others, to the role. Candidates are usually selected through a ballot of the membership.

    The strength of ENTs, such as the finance director, is that they are typically experienced in financial matters and have an intimate knowledge of the sponsoring company. They are in a very good position to assess the employer covenant. However, this presents a potential conflict of interest: in their role as a trustee they are being asked to act in the best interests of the members, while their day job demands that they look after the employer’s interests.

    Hiring one or more independent trustees is an increasingly popular option. Cost may be a prohibitive factor for small schemes but large ones may opt up to for a third of the board to be made up of independents.

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