When should you consider using independent trustees for your company’s pension scheme?
All trusts need trustees in order to be made to fulfil their purpose of delivering benefits to members who are contributing through company schemes. The circumstances under which companies consider opting for a professional independent trustee to take care of their pension schemes vary from urgent situations, such as the discovery of a potential conflict of interest of existing trustees, to more gradual reflection on the need to reduce fees by looking to independent trustees with special expertise who can deal with complex funding issues or otherwise ordinarily time-consuming trust administration quickly and efficiently as part of their dealings as a pension trustee.
Independent trustees have no connections or vested interests in the trust which they administer, and will be completely separate in that way from the company’s scheme. It is for this reason that in emergency situations, where the pension fund itself is at risk, independent trustees are brought in by the Pension Protection Fund during insolvency, when a scheme has to be brought to an end as underfunded. Companies themselves will often follow this model in appointing a trustee who is independent in order to mitigate against potential insolvency or trust mismanagement, as the pension trustee will have an appreciation of trusts that lay trustees often cannot have gained, or will take longer to pick up.
The issue of specialist knowledge and technical experience is probably the most common deciding factor when it comes to appointing a trustee. It is advisable to consider using independent trustees in order that the duties and discretions which a trustee is legally obliged to understand and carry out are delivered in line with the increasingly complex regulation of the pensions industry. For instance corporate governance now represents a key focus for the pension trustee, and an independent trustee will be able to advise on best practice for keeping records and safeguarding decision-making through procedure, as well as actually doing the job of administering the trust. Co-trustees will still need to work to fulfil their role as independent trustees in the sense that they cannot act in their personal best interests or the company’s best interests where that would be detrimental to the trust, but they will be relieved from having to find out the latest technical information, laws and regulations.
The tough task of attracting volunteer trustees to learn about trust administration and to commit time to attending board meetings and going through accounts and records will often be decisive in a company going for the independent trustee route. This is not least because it is easier to deal with the point that trustees must never have a conflict of interest with the trust; an issue which will concern company directors tasked with administering trusts on behalf of employees and is easily removed by appointing a trustee separate to the company.
Finally, independent trustees are expected by the courts to maintain a much more advanced knowledge and understanding of the law and regulation in this area, such that a claim against an independent trustee is likely to yield compensation where there has been negligence, which is certainly in the best interests of the members in terms of protection.