As the law and regulations relating to pension schemes have developed, independent trustees have become increasingly in demand. An independent trustee can be elected by members of the scheme, or appointed by management. As independent trustees, they are free from vested interests (lay trustees may, for example, also be beneficiaries of the scheme) and they are required to adhere to the official Codes of Practice as laid out by the Pensions Regulator. It is essential that all independent trustees are up to speed on the financial market at large as well as the developments that relate directly to pensions, and the requirements for that knowledge are set out in a section of the official Codes of Practice entitled ‘Trustee Knowledge and Understanding’. According to the Code, independent trustees “will be expected to be fully conversant with scheme documents from the date when the appointment becomes effective”.
With the pensions crisis a major issue in the financial world, there is an increased emphasis in pension scheme administration on the importance of governance. This shift has been met by companies changing the way they manage and administrate the schemes they sponsor. Partly to pre-empt these changes and partly to keep up with them, the Pensions Regulator has been reviewing how it assesses conditions for joining and remaining on the official Register of Independent Trustees, who are more and more frequently being called in to offer independent advice to pensions schemes, either together with or instead of the already existing committees of lay trustees. It has become increasingly important to offer schemes and their members impartiality, transparency and confidence in how they are being administrated and managed, and independent trustees are being called in to meet the changing demands. In 2008, the Pensions Regulator published a consultation document on proposed new criteria for independent trustees and this year it launched its education drive, an initiative designed to highlight the importance of administration in securing good outcomes from pensions saving.
The aim is to provide a clear, objective administration according to the market and with the interest of the scheme’s members in mind. In the case of insolvency (of a scheme or its sponsor), independent trustees will have the responsibility of carrying out a detailed assessment of the scheme’s assets and liabilities. The scheme rules will have detailed provisions to deal with the winding up of the scheme, and the eventual distribution of its assets. Independent trustees will have, in general, a higher duty of care towards the scheme and higher levels of responsibility than lay trustees, and in the event of insolvency this may be an asset to the scheme and its members.
The expertise of an independent trustee is market-led – often professional independent trustees work for several schemes at once – and can therefore be easily suited to each individual scheme. With the downturn still affecting the current market, the advice of independent trustees could be extremely beneficial in working out cost-effective ways of continuing to run pensions schemes.
