1. Individual trustee
2. Corporate Trustee
3. Trust Corporation
4. Employer as Trustee
5. Custodian Trustee and Committee of Management
6. Pensioneer Trustee
7. Independent Trustee
8. Member Nominated Trustee/Director

With respect to Individual Trustees, any person over the age of 18 can be appointed as a trustee of a pension scheme, except where that person:  (6)

• Convicted of an offence involving dishonesty or deception
• Undischarged bankrupt
• Has made an arrangement with his creditors and the arrangement is still in force
• Disqualified from acting as a company director
• Suspended or disqualified from acting as a trustee by a court order or the Regulator
• Incapable of acting as a trustee due to a mental disorder.

In a trustee-like manner in their management of the pension scheme as if they were individual trustees.

However, the directors' fiduciary duty is owed to the company rather than directly to the scheme members.

Where one of its directors would be disqualified from acting as an individual trustee by one of the following reasons:

1. Conviction involving dishonesty or deception
2. Undischarged bankrupt
3. Has an arrangement with creditors
4. Disqualified from acting as company director

It is a corporate trustee which is:

• formed under the laws of the UK and has a place of business in the UK
• empowered by its constitution to act as a trustee
• either incorporated by a special Act of Parliament or is a registered company with an issued share capital of at least £250,000 of which £100,000 is paid up.

What is an employer as trustee?

Why is this becoming more uncommon? (2)

Where the employer acts as the sole trustee.

• Statutory requirements relating to MNT's make it inappropriate for the directors to act as trustees.
• Conflicts of interest

What is a 'Pensioneer Trustee'?

What is the main purpose of a pensioneer trustee?

HMRC required SSAS's to have a professional trustee appointed from a list of approved 'pensioneer trustees'.

• To prevent an improper winding up of the scheme in order to distribute assets to the members

• Independent T:
  • has no interest in the assets of the employer or the scheme
  • is neither connected with nor an associate of: any employer; any person acting as insolvency practitioner; the official receiver to the employer.
•  Reg can appoint under Section 23 of the Pensions Act 1995
• Can be appointed in the following circumstances:

•  
  • An insolvency practitioner is appointed to an employer
  • the official receive becomes the liquidator of the company
  • the official receiver becomes the interim receiver of the property of a person who is a participating employer
  • the official receiver becomes the receiver and the manager, or trustee, of the estate of a bankrupt who is a participating employer in relation to a scheme.
• Scheme may choose to appoint because:
  • Independent voice in all trustee decisions
• • Add additional expertise
  • Managing conflicts of interest.

• Someone who is:
  • nominated in a process in which at least all the active and pensioner members or organisations which adequately represent them could participate; and
  • selected as a result of a process which involves some or all of the scheme members.
• Regulator Code of Practice:
  • Provides guidance on what trustees must do to comply with the new MNT requirements, and the timescales in which action needs to be taken.
  • Proportionality
    • Trustees should select an approach, the costs and nature of which are appropriate to the circumstances of their scheme.
  • Fairness

  • • Trustees should ensure the arrangements are fair and transparent.  

  • Transparency
    • The outcomes of the nomination, selection process and the method of selection should be communicated to all the members involved.
• Timescales for implementation:
  • No opt-out:  6th April 06
  • Opt-out:  earliest of
    • date opt-out expires; or
    • 31st Oct 2007

In order to replace a trustee who:

• has died
• remains outside the UK for more than 12 months
• wishes to resign
• refuses to act
• is unfit or incapable of acting

• Purpose of power is to protect the interests of scheme members and safeguard scheme assets and the PPF
• Has general power to appoint where he believes it necessary to ensure that:
  • the trustees have the expertise needed to administer the pension scheme properly
  • the scheme's assets are used and applied appropriately
  • the number of trustees is sufficient for the proper administration of the scheme.

• Trust deed sets out circumstances and method
• Principal employer
• MNT's - principal employer with consent of all trustees
• Pension Regulator - can prohibit a person from being a trustee where he deems them not to be a fit and proper person.
• Court - where the proper execution of the trust is being threatened.
• Section 36 of the Trustee Act 1925

Under what Section of which Act can a trustee be disqualified?

Under what circumstances will a person be automatically disqualifed?  (4)

Section 29 of the Pensions Act 1995

• Convicted of an offence involving dishonesty or deception
• Undischarged bankrupt
• Has made an arrangement with creditors
• Disqualified from acting as a company director.

• pending consideration being given to the making of a prohibition order
• where the trustee is a company, if a petition for the winding up of the company has been presented to the court
• where a bankruptcy petition has been presented to the court
• where proceedings have been instituted for an offence involving dishonesty or deception
• where an application has been made to the court for a disqualification order against him acting as a company director.

1. Duty on Acceptance of Trusteeship
2. Duty to act in accordance with the trust deed
3. Duty to act impartially
4. Duty to exercise reasonable skill and care
5. Duty to act without charge
6. Duty not to delegate
7. Duty to act jointly
8. Duty not to profit from trust property
9. Duty to prepare and disclose accounts

• familiarise himself with the trust property, terms of trust and documentation
• ensure that the trust property is vested in him and his co-trustees
• consider the suitability of the investments
• ensure that accounts are maintained
• ensure duties are not delegated to others unless permitted in trust deed or by statute
• enusre trustees do not profit from trust unless deed or statute allows or beneficiaries consent

Which duty was considered in

Edge v. Pensions Ombudsman (1999)

What did the case concern and what was the outcome?

• Duty to act impartially.
• Concerned a decision by trustees to use surplus in scheme to reduce employee and employer contributions and grant additonal benefits to members who were in service on 1 April 1994.
• Pensioner member complained as his contributions had helped to create surplus but he received no additonal benefit.  Rejected by Court of Appeal.
• Trustees cannot confer an advantage on one beneficiary at the expense of the other, but trustees do not have to treat all beneficiaries in the same way.

Duty to Exercise Reasonable Skill and Care

What level of skill and care is expected of trustees?

Skill and care that the ordinary man would use in the management of the affairs of a third party for whom they felt morally bound to provide.

Professional trustees:  A higher standard is expected.

Duty to Act Jointly

Under what circumstances do Trustees not need to act jointly? (3)

• Where trust deed or court directs otherwise
• to receive income
• where there has been a valid delegation

1. Duty of care
2. Payment of tax
3. Disclosure
4. Notification of certain scheme-related events to the Regulator
5. Duty to maintain a statement of investment principles
6. Duty to prepare a payment schedule/schedule of contributions
7. Duty to put in place a recovery plan
8. Duty to ensure one third MNT's
9. Duty to put in place and operate a IDRP
10. Duty to operate a separate bank account
11. Duty to pay cash equivalent transfer values
12. Duty to have sufficient knowledge and understanding.

Duty of Care

Which act imposed the statutory duty of care?

The statutory duty of care applies when a trustee exercises powers in respect of?  (6)

Trustee Act 2000

1.  Investment
2. Acquisition of land
3. Entering into arrangements under which a person is authorised to act as agent, nominee or custodian
4. Compounding of liabilities
5. Insuring trust property
6. Valuing or auditing a reversionary interest in any of the trust property.

Since when have trustees been required to comply with TKU?

Trustees must have appropriate knowledge and understanding of: (3)

• Since 6 April 2006
• T's must have appropriate knowledge and understanding of:
  • The law relating to pensions and trusts
  • Principles relating to the funding of occupational pension schemes and the investment of scheme assets
• Conversant with scheme's documentation
  • TDR
  • SIP
  • SFP
  • any other docs
• Reg Code of Practice
  • Understand fully any advice given
  • challenge advice if sensible to do so
  • enter fully into all decision making processes
• New T's - 6 month grace period
• Regular training and keep log
  • Online programme - trustee toolkit

General Powers of Trustees

Most important powers (12)

Balance of powers

1. Amend the trust deed and rules
2. Appoint and remove trustees
3. Invest the scheme assets
4. Set employer and employee contribution rates
5. Augment members' benefits
6. Act by majority
7. Insure benefits
8. Buy annuities
9. Deduct tax from payments
10. Make and accept transfer payments
11. Admit new employers to participate in the scheme
12. Wind up the scheme

• The allocation of powers between the principal employer and the trustees.
• Determined not only by scheme documentation but also statutory provisions.  E.g. Pensions Act 2004 requires trustees and employers to agree upon the rate of employer contributions even where the trust deed provides otherwise.

What is a scheme's 'Balance of Powers'?

What determines a scheme's 'Balance of Power'?

The allocation of powers between the principal employer and the trustees.

Determined not only by scheme documentation but also statutory provisions.  E.g. Pensions Act 2004 requires trustees and employers to agree upon the rate of employer contributions even where the trust deed provides otherwise.

• Powers:
  • Trust deed contains wide investment powers which permit T's to invest scheme assets
  • In absence of express power, PA95 gives trustees general power of investment
• Duty:
  • Ordinary prudent man would ...
  • Not only to invest but to actively seek the best possible financial return compatible with:
    • degree of risk the prudent man would regard appropriate to the trust
    • best financial interests of all beneficiaries having regard to the main purpose of the trust, regardless of personal views ...
• OPS(Inv) Regs 05 - T's must exercise their discretion in accordance with the following principles (if 100 or more members):

1. Assets must be invested in the best interests of members
2. Power of investment must be exercised in a manner calculated to ensure the security, quality, liquidity and profitability of the portfolio.
3. Assets must be invested in a manner appropriate to the nature and duration of the expected future retirement benefits payable.
4. Assets must consist predominantly of investments admitted to training on regulated markets (all others kept to a prudent level)
5. Assets must be properly diversified
6. Investments in derivative instruments may only be made if they reduce risk or facilitate efficient portfolio management.

• With 100 or more members must prepare and maintain SIP
• Must be in writing and cover trustees' policies in respect of:
  • The kinds of investments
  • proportions 
  • Risk
  • Expected returns 
  • The realisation of Investments
  • The extent to which social, environmental or ethical considerations are to be taken into account
  • The exercise of the rights attached to investments

Who can trustees delegate day-to-day investment decisions to? (2)

What can trustees not delegate?

• Fund manager authorised by FSA
• Sub-committee which consists of 2 or more trustees

The strategic investment functions, i.e. Preparing and revising the Statement of Investment Principles

Trustees who delegate investment matters to a fund manager are not responsible for the acts or defaults of the manager so long as they satisfy themselves that:  (2)

In relation to an investment sub-committee, who has liability?

• The fund manager has the appropriate level of knowledge and experience
• The manager is carrying out his work competently and complying with the requirements of Section 36 of the Pensions Act 1995 and The Occupational Pension Schemes (Investment) Regulations 2005.

Trustees remain liable for the acts and defaults of the sub-committee.

Give examples of the circumstances in which trustees may be required to exercise their discretion?

What happens if a beneficiary challenges a discretionary decision reached by trustees?

• What investments to make
• Whether a member is eligible for ill health early retirement

Courts and Pensions Ombudsman can't subsitute their own decision for that of the trustees.  If they think trustees have not exercised their discretion properly, they should refer the decision back to the trustees for them to reconsider.

• Ask themselves the correct questions
• Not act capriciously - decisions should not be perverse or irrational
• Consider all relevant factors
• Not consider any irrelevant factors
• Exercise the deiscretion themselves (unless valid delegation in place).

• How, to whom and by when notice of the meeting should be given
• The number of trustees required to constitute a quorum
• How decisions are made (majority)
• How the chairman should be appointed and whether he has a casting vote.

1. Actuary and/or auditor changed 2 or more occassions within a 12 month period.
2. Making a transfer payment, or accepting a transfer, the value of which is more than the lower of:  5% of assets and £1.5m
3. A decison to grant benefits, or a right to benefits, to a member, the cost of which is more than the lower of:  5% of assets and £1.5m
4. Any decison to take action which will result in any debt not being paid in full
5. A decision to grant benefits, or a right to benefits, on more favourable terms than those provided by the scheme rules without seeking the advice of the actuary or securing additonal funding where such funding was advised.

• Exoneration
  • Seeks to exlude the trustees from liability
  • Contained in trust deed
  • Does not exclude liability where there has been fraud or dishonesty
• Indemnity
• • An indemnity from a company is only as good as that company's ability to pay
  • A court may refuse to uphold an indemnity in relation to a deliberate breach of trust
  • Trustee cannot be indemnified for fines imposed for an offence
• Section 61 of the Trustee Act 1925
  • Court has discretion to relieve trustee of liability for a breach of trust where it believes the trustee acted honestly and reasonably and ought to be excused.
• Insurance
  • Protecting the Trustees Against Personal Liability
  • Protecting the Scheme Assets
  • Policy Limitations - right of subrogation