Pension Fund Trustees

Bossyboots

Is anyone on here a Pension Fund Trustee.

My OH has been asked to take on this role to replace someone who is retiring and all the info I have found so far makes me think he would be very unwise.

He has asked his employers to look into insurance to cover him in the event of difficulties but I am not convinced that some of the risks are insurable.

If anyone has any information, thoughts or comments on this I would be glad to hear them.

dunstonh

There are legal liabilities he has to be aware of and ideally, he ought to be paid for his time.

Just take a read of the following article:

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2005/02/16/cmpen16.xml

To highlight just one paragraph:

"Becoming a trustee is not something that should ever be undertaken lightly," says Stewart Ritchie, the pensions director at Aegon and himself a pension fund trustee. "These new commitments will make people more fully appreciate the risks involved. You're putting your neck on the line. If something goes badly wrong, you're personally liable."

Bossyboots

dunstonh wrote:

There are legal liabilities he has to be aware of and ideally, he ought to be paid for his time.

Just take a read of the following article:

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2005/02/16/cmpen16.xml

To highlight just one paragraph:

"Becoming a trustee is not something that should ever be undertaken lightly," says Stewart Ritchie, the pensions director at Aegon and himself a pension fund trustee. "These new commitments will make people more fully appreciate the risks involved. You're putting your neck on the line. If something goes badly wrong, you're personally liable."

Thanks. I sent him the link to that article about an hour ago. You have reinforced my view that this is something he should tread warily on and I would prefer him not to get involved.

EdInvestor

There have been a number of reports recently that pension funds are having big problems getting trustees for legal reasons.

Hence the move to Group Personal Pensions ( run by insurance companies, no trustees required) from money purchase/DC company pensions (trustees required, and no side perks as with final salary pensions like making money from the pension fund;) )

I would take a very cautious view on the request.

Bossyboots

We have had a bit of a to do about this tonight.

My OH has now found out the name of someone else who has offered to take this on and would prefer to do it himself rather than have this guy involved. He also feels it is an opportunity to protect his pension.

We have gone over what the consultant told him today and that has just reinforced my view that there are aspects of being a Trustee that are not going to be covered by insurance. I asked him to specifically ask whether there was any way of covering all risks and he did not get a straight answer.

He is not a happy bunny at the moment but I think he can now see that being able to keep an eye on his pension scheme is not worth the risk to our retirement nest egg and home. I have told him I am quite happy for him to tell them at work that I am not prepared to take the risk so that they don't think he is just being difficult. Apparently the company accountant raised the issues of personal liability when they started the pension but the current Trustees were unaware of their position until my OH raised it with them.

Thank you for your input dunstonh and Edinvestor. I am going to ask him to tell them tomorrow that he won't do it as I am really worried about it all going wrong.

Pal

In practice the potential liabilities with being a pension fund Trustee are very very small. Your husband should ask the consultants to prepare a summary of the protections in place. In practice Trustees are covered by Trust Law itself, and there are usually huge amounts of protection included within the Trust Deed itself, usually including a full indemnity from the sponsoring employer and the pension scheme itself.

The basic premise is that if Trustees act legally, take advice and make decisions for the right reasons, they are protected by Trust Law and can never be prosecuted, even if the decisions they make turn out to be completely wrong.

Trustee indemnity insurance is almost always a waste of time because the legal protections from Trust law and the Trust deed are usually so great that the insurance never has to pay out, even in the worst possible circumstances.

And even if all of these protections fail, Trustees can usually sue their advisers before they face any liabilities themselves.

However, I personally would not become a Trustee because it is a lot of hassle for no extra money. I do however admire the people that choose to do it, as dealing with consultants like me must be a pain in the backside at times.

EdInvestor

...dealing with consultants like me must be a pain in the backside at times...

I didn't like to say it, but those actuaries have got to be one of the big downsides of being a trustee

Bossyboots

My OH was once Chair of Governors at a school on special measures so he has no problem with giving up some of his time and is used to dealing with consultants of various types and personalities.

My only issue is one of protection and so far everything I have seen indicates the potential at the very least, for a huge fine for something going wrong.

I will certainly be getting him to take up Pal's suggestion of asking for a summary of the protections in place.

What would be the position if the other trustees agree to do something he disagrees with and it all goes wrong?

It is partly because of some of the difficulties encountered when he was involved with the school, that makes me wary now.

MrChips

I am not a pension fund trustee but I work with them on a daily basis.

It is a responsibility, but he would be one of many so his input would be as big or as small as he cared to make it. There is the potential for fallout if things go wrong, but as Pal says this is highly unusual and as long as he doesn't do anything stupid he would be well protected (but as you say it would be a good idea to get a summary of the protections).

Some trustees are paid by the company for their role, although in my experience it is less than half of the trustees I have come across (the argument being that they would be fulfilling their role during their daily office time so it shouldn't be any extra work on top of their usual job).

Basically I think it boils down to this - if your husband would thrive on, and enjoy, the extra responsibility then he might like to take it on. Other pros would be that he would have a bigger say in the future (and safety) of his own pension and that of his friends and colleagues and he may get to find out some interesting titbits about the workings of the Company (if that is the sort of thing that would interest him). Weighed up against this is the (small) risk of something going wrong, and the time he would have to put in making sure he was conversant with the workings of the Scheme (the Company would ensure he got adequate training) and the extra hassle of attending and preparing for a few meetings a year.

Depending on what he knows about pensions now, he may appreciate the extra know-how he gets from this role and the help it might be for his own pension provision.

Of course the main benefit (as Ed alluded to!) is that he would get to work with some actuaries :-)

To answer your recent question, all Trustee meetings and decisions should be minuted so he would have the opportunity to put on the record the fact he went against the decision of the other Trustees.

I'm not sure what difficulties your husband encountered at the School, but I would imagine being a Trustee would be a smoother ride. There aren't normally too many contentious decisions to make, and the Trustees get professional advice all along the way from actuaries and lawyers.

EdInvestor

Mr Bossyboots might like to read
this Telegraph article for a bit of background to the current hornets nest surrounding defined benefit (final salary) company pensions.

To summarise: as you know, most such pensions have deficits, many pretty large, due to the stockmarket crash. Why was the money invested in the stockmarket? Because the actuarial consultants advised the trustees to put it there. This was called "The Cult of the Equity".

Thus blame fell on the actuaries for the deficits. So now they've changed their tune: pension money must be invested in bonds, they now say. As all the pension funds are now switching over, following instructions, this has created a shortage of bonds, so their proces have gone up. And thie yields have gone down, thus meaning you need more of them to get enough income to pay out to your pensioners. This is called "The Cult of the Gilt".

So it's costing the companies (and the members of the pension fund) a lot more money and they're not happy. Simultaneously, to make things even worse, the actuaries have revised their mortality tables, having decided that everyone's gonna live a lot longer than they previously thought.

So that's yet again more costs for the pension fund as they have to pay out for longer, thus causing the deficit to rise even more.

The article above is from a fund manager, who's also not happy as he's been given an impossible target to reach without using equities, by a bunch of actuaries whose colleagues are making damn sure it's impossible by their other decisions.

An observer (such as a trustee) might think that rather than follow cults, actuaries could try a bit of basic common sense in the asset allocation area.However the latter seems to be a bit thin on the ground.Mr Bossyboots may feel that life is too short to get involved in all this until there's some clear evidence that common sense has returned.

Debt_Free_Chick

Bossyboots wrote:

We have had a bit of a to do about this tonight.

My OH has now found out the name of someone else who has offered to take this on and would prefer to do it himself rather than have this guy involved. He also feels it is an opportunity to protect his pension.

He can't do this. He has to act in the best interests of the members of the scheme as a whole and not abuse his position simply to "protect his own pension". The decisions he makes must be based on what's best for everyone, not just what's best for him.

We have gone over what the consultant told him today and that has just reinforced my view that there are aspects of being a Trustee that are not going to be covered by insurance. I asked him to specifically ask whether there was any way of covering all risks and he did not get a straight answer.

Insurance is not really necessary. There will be a clause in the pension scheme trust deed whereby the employer "indemnifies" the trustee for the cost of any mistakes, defending legal action etc. I've worked as Secretary to Pension Scheme Trustees for more than 25 years and I've never had an instance whereby any Trustee has ever had to cough up their own money. Generally, mistakes can be put right and legal action is very, very unusual. Even then, action is against the trustee board as whole and the indemnity from the employer kicks in.

He is not a happy bunny at the moment but I think he can now see that being able to keep an eye on his pension scheme is not worth the risk to our retirement nest egg and home. I have told him I am quite happy for him to tell them at work that I am not prepared to take the risk so that they don't think he is just being difficult. Apparently the company accountant raised the issues of personal liability when they started the pension but the current Trustees were unaware of their position until my OH raised it with them.

You mentioned a "consultant". You don't have to name the person, but the name of the firm would be helpful to assess whether this is a pensions expert or not.

Anyway, you don't need a consultant but the trustees do need to have other professional advisers. Get a copy of the most recent Annual Report to look at the advisers appointed by the trustees to help them run the scheme.

Is there a secretary to the trustees? There should be and this person will actually do the running around for the trustees and ensure that all the statutory obligations are met. The secretary will also arrange meetings and produce briefing papers that help the trustees make decisions. My trustees only need to turn up to four meetings a year - I make sure "everything happens" in between meetings. Ideally the secretary should be professionally qualified - depends on the size of the company as to whether they employ a secretary directly. Often, the secretary will be the pensions manager.

Being a pension scheme trustee is similiar to being a charity trustee, school governer, parish councillor etc. You don't really have the power that you might imagine as there is always a "best way of doing things" or "the only right decision to make" and there should be guidance from professional advisers and/or the secretary to help with that.

There's a very interesting Code of Practice for trustees here. It's a voluntary code adopted by many of the bigger, well-run pension schemes. Some of the references may have been superseded by Pensions Act 2004, but it's still worth a read.

HTH