Pension Scheme Trusteeship

Most occupational pension schemes in Ireland
are run under trust law and have trustees
to manage them

News Cast

    The reason that trust law has been so successful for pension funds in Ireland and the UK is that it makes use of a very simple idea - the concept of one person holding property on behalf of another.

    This is just what pension scheme trustees do - they are the guardians of investment funds that act to support the intentions of an employer to continue to reward employees with what is, in effect, deferred remuneration in their retirement.

    Trustee arrangements allow investment funds to be looked after by people who are required by law to take account of the interests of the pension scheme members or beneficiaries. Trustees employ their power and duties to ensure that the contributions are collected, the benefits are paid and the assets invested. Trustees use their discretion to pay ill health benefits, when appropriate, choose the right advisers and consultants and, if things go wrong, they deal with the winding up of a pension scheme in way that is fair and reasonable.

    In the past, trustees have managed perfectly well on the basis of the requirements of honesty and common sense leaving the technical issues to investment managers, actuaries and legal advisers. Increased pension legislation may have bigger consequences thereby increasing the trustees' liabilities.

    Traditionally, trustees were always liable for breaches of trust. However, regulation will lead to fines or publicly reprimanded trustees. It is not surprising that many pension scheme trustees - few of whom are paid for the privilege and most of whom regard their appointment as a cross between a community obligation and an honour - are thinking twice about whether the risk-reward ratio is appropriate.

    Trustees will need to understand as best they can their powers, duties and discretions and their increasing fiduciary and statutory liabilities. Outside of statutory appointments, it is still rare in Ireland and the UK for an employer to appoint an independent trustee unless it wants to demonstrate to staff that it is not unduly influencing the trustees’ decisions.

    With increased legislation and enhanced attention being devoted to all aspects of pension schemes the appointment of independent trustees is about to change.

    Employers and pension scheme members will welcome the appointment of independent trustees. Independent trustees can oversee legal and investment advice thus leading to a more structured decision making process. Independent trustees will also be able to review all service providers rigorously to ensure that the best advisers are selected to work alongside trustee boards.

    Appointing independent trustees needs to be done with great caution and scrutiny. By typing "independent trustees" into a search engine you will receive more that 10,000 responses.

    The truth is that anyone can set up as an independent trustee. No qualifications are required other than eligibility to satisfy the legal definition of "independent". Employers and trustees need to be vigilant.

    After all, as independent trustees are paid, they should be expected to deliver higher care of duty to pension schemes and their members. The background and skills of the independent trustee should be ascertained at the outset. It is imperative that the independent trustees have qualities that can complement the existing trustee board. The selection and ongoing operation of an independent trustee is imperative. Before selecting an "independent trustee" it is imperative that the company, existing trustees and pension scheme members get the correct advice.

    Advice is available on the selection and management of your independent trustees to ensure their success.