Occupational Pension Schemes: Trustees’ Responsibilities

Many employers offer their staff an opportunity to save for their retirement   through an occupational (or company) pension scheme.

Those employees who join the scheme need to have confidence that the scheme   is being well run.

The role of pension scheme trustees is very important in ensuring that the   scheme is run honestly and efficiently and in the best interests of the   members.

We outline in this factsheet the main responsibilities of occupational   pension scheme trustees.

Background

The Pensions Act 1995 (the Act) brought about a number of major changes to   the way occupational pension schemes are run. The 2004 Pensions Act brought   about further change and introduced, in April 2005, The Pensions Regulator (TPR)   as the UK regulator of work-based pension schemes.

TPR has an important role in the pension sector. Its objectives,  as set out in legislation,  are to:

• protect the benefits of members of work-based  pension schemes
• protect the benefits  of members of personal pension schemes (where there is a direct payment  arrangement)
• promote and to improve  understanding of the good administration of work-based pension  schemes
• reduce the risk of situations arising which may  lead to claims for compensation being payable from  the Pension Protection Fund
• maximise employer compliance with employer  duties  and  the  employment safeguards   introduced by the Pensions Act 2008
• minimise any adverse  impact on the sustainable growth of an employer (in relation to the exercise of  the regulator’s functions under Part 3 of the Pension Act 2014).

TPR has  three  core  powers that  underpin its regulatory approach:

• investigating  schemes by gathering  information  that helps them  identify and monitor risks
• putting things right  where problems have been identified
• acting against  avoidance to ensure that employers do not sidestep their pension obligations.

In fulfilling its role, TPR produces important guidance for those involved   with pension schemes including trustees as well as auditors and actuaries. This   guidance is available from TPR’s website (www.thepensionsregulator.gov.uk).

The Pensions Act 2008 introduced a requirement on UK employers to automatically enrol all employees in a ‘qualifying auto-enrolment pension scheme’ and to make contributions to that scheme on their behalf. Enrolment may be either into an occupational pension scheme or a contract based scheme.

Many contract based schemes are group personal pensions where an employer appoints a pension provider, often an insurance company, to run the scheme.  The National Employment Savings Trust (NEST) is a government backed pension scheme that employers can use for auto enrolling employees.

Compliance with the regulations  started  from 2012 for the largest employers. The deadline for being compliant (an employer’s  ‘staging date’) is determined by the number of people in their PAYE scheme and  for smaller employers is between 2012 and 2018.

Further information is available here.

Pension scheme classification

Employers can help promote retirement benefits for their employees in a   number of ways including:

• occupational schemes
• group personal pension schemes
• stakeholder schemes.

Group personal pension schemes and stakeholder schemes are personal plans in   individual member’s names, where the employer simply acts as an administrator.   There are no accounting or audit requirements for these types of schemes.

An occupational pension is an arrangement an employer can use to provide   benefits for their employees when they leave or retire.

There are two main   types of occupational pension scheme in the UK:

• salary-related schemes
• money purchase schemes.

Whatever the type of scheme, it will usually have trustees.

The role of trustees

Most company pension schemes in the UK are set up as trusts. There are two   main reasons for this:

• it is necessary in order to gain most of the tax advantages
• it makes sure that the assets of the pension scheme are kept separate from   those of the employer.

A trustee is a person or company, acting separately from an employer, who   holds assets for the beneficiaries of the pension scheme. Trustees are   responsible for ensuring that the pension scheme is run properly and that   members’ benefits are secure.

In fulfilling their role, trustees must be aware of their legal duties and   responsibilities. The law requires trustees to have knowledge   and understanding of, amongst other things, the law relating to pensions and   trusts, the funding of pension schemes and the investment of scheme   assets.

The law also requires trustees to be familiar with:

• certain pension scheme documents including the trust deed and rules
• the statements of investment principles and funding principles.

A code of practice has been issued by TPR explaining what trustees need to do   in order to comply with the law in this area. Trustees should arrange   appropriate training as soon as they are appointed and should then continue with   their learning to keep their knowledge up to date. New trustees have six months   from their appointment date to comply with this requirement.

Trustees' duties and responsibilities

Trustees have a number of very important duties and responsibilities, which   include:

• acting impartially, prudently, responsibly and honestly and in the best   interests of scheme beneficiaries
• acting in line with the trust deed, scheme rules and the legal framework   surrounding pensions

In addition to these general duties, trustees also have a number of specific   duties and tasks that they must carry out. The main tasks are to ensure the   following happen.

Contributions

• The employer accurately pays over contributions on time.  There are strict rules covering this area.

Financial records and requirements

• The right benefits are paid out on time.
• An annual report is prepared (see annual report below).
• An auditor’s statement is obtained confirming details of the payment of   contributions to the scheme and, if required, an audit of the scheme accounts is   arranged.

Investment

• The pension fund is properly invested in line with the scheme’s investment   principles and relevant law.

Professional advisers

• Suitable professional advisers are appointed as running a pension scheme is   complicated and often specialist advice will be needed.

Pension scheme records

• Full and accurate accounting records are kept, which include records of past   and present members, transactions into, and out of, the scheme and written   records of trustees’ meetings.

Members

• Members and others are provided with information about the scheme and their   personal benefits.

Registration, the scheme return and collecting the levy

• TPR is provided with information required by law for the register, that the   scheme’s annual return is completed and the annual levy for the scheme is paid.

Related matters

Reporting to TRP

Where a breach of law takes place and it is likely to be materially   significant to TPR, trustees and indeed others involved in running the scheme   have a legal duty to report the breach to the regulator. Code of practice 01,   ‘Reporting breaches of the law’ provides guidance on the factors that should be   considered when deciding to make a report.

In addition, trustees also have to notify TPR when particular scheme-related   events happen. These are known as ‘notifiable events’, also the subject of a   code of practice.

The annual report

The trustees of most schemes must make an annual report available within   seven months of the scheme year end. The report usually includes:

• a trustees report, containing investment, legal and administrative information about the   scheme
• actuarial information, if applicable
• governance information, if applicable
• the audited accounts and audit report.

Trustees’ liability

If something does go wrong with the pension scheme, trustees may be held   personally liable for any loss caused as a result of a breach of trust. This   could happen when, for example:

• a trustee carried out an act which is not authorised under the trust deed   and scheme rules
• a trustee fails to do something that should have been done under the trust   deed and scheme rules
• a trustee does not perform one or more of their duties under trust law or   pension legislation or does not perform them with sufficient care.

The rules of the pension scheme might protect trustees from personal   liability for a loss caused by breach of trust, except where it is due to their   own actual fraud. In some cases, the employer may provide indemnity insurance   for the trustees.

How we can help

We would be pleased to discuss your role as a company pension scheme trustee   in more detail. We are also able to advise on the accounting and audit   requirements of your scheme. Please contact us for further information.