Independent Trustees Called In to Aid Struggling Pension Schemes

The pensions crisis in the UK has been rumbling for a number of years, and recent reports reveal that the shortfall is wider than initially anticipated.

A combination of a higher life expectancy and dwindling stock market returns has led to funds being unable to meet their obligations, risking having to suspend schemes and, in the worst cases, facing insolvency. Companies have been forced to respond by altering the administration of the pension schemes they sponsor, with an increased emphasis on the importance of governance. It has become increasingly important to offer schemes and their members impartiality, transparency and confidence in how they are being administrated and managed. As a result, independent trustees are now being called in to meet the changing demands.

Partly to pre-empt the 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. Independent trustees are being called in across the board, either together with or instead of the already existing committees of lay trustees. Unlike lay trustees, however, who often commit their time outside of an existing job position, it is the independent trustee’s sole onus to be responsible in the role of trustee. In 2008, in order to officially delineate the roles of the independent trustee, the Pensions Regulator published a consultation document on proposed new criteria.

In 2011 it launched its education drive, an initiative designed to highlight the importance of administration in securing good outcomes from pensions saving. Both trends reveal the importance of the independent trustee in pension scheme governance and, most importantly, their future significance.

As the law and regulations relating to pension schemes have developed, independent trustees have become increasingly in demand. 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. The requirements for their knowledge are set out in the official Codes of Practice. According to the Code, independent trustees “will be expected to be fully conversant with scheme documents from the date when the appointment becomes effective”.

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.

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. The pensions scene continues to be embattled, but new measures are being tested and regulated in an effort to stabilise the market, in the hopes that when market conditions improve, the funds will bounce back.