Are you thinking of taking up a role as a pension trustee? We explain everything from what it means to how to limit personal financial risks with pension trustee liability insurance.
What is a pension trustee?
Being a pension trustee is an extremely important role. Becoming one is not something to be taken lightly as scheme members will be relying on you for their future financial security.
Legally, most occupational pension schemes need to be set up as a trust and will have one or more trustees. The trustee(s) is the legal owner of the pension scheme and can be an individual or company.
You don’t need to be a pension expert but you do need to be trustworthy, responsible and fair if you are a pension trustee. You’ll also need to understand the laws relating to pensions and trusts. You’ll have up to six months to gain that knowledge, but you also need to be ready to make any decisions in the meantime. To make it easier, the Pensions Regulator provides a free Trustee Toolkit to help you.
Who can be a pension trustee?
If you’re over 18 years old and legally capable of holding property you are eligible to be a pension trustee unless you:
- Are convicted of an offence involving deception or dishonesty (unless the conviction is spent)
- Are an undischarged bankrupt, or have entered into certain other voluntary agreements with creditors
- Have been disqualified from acting as a company director
- Have property in Scotland which is covered by a sequestration order
- Are a company, and any director of the company has been disqualified from being a trustee
- Are a Scottish partnership, and any of the partners have been disqualified from being a trustee
What does a pension trustee do?
The Pensions Act 1995, Trustee Act 2000, and Pensions Act 2004 all outline in detail what is expected from pension trustees. In addition, your scheme’s trust deed and rules will outline your powers, obligations, and responsibilities.
As a trustee, by law you have to make sure that:
- The scheme is run according to the rules and regulations
- All decisions are made with the scheme beneficiaries’ best interests in mind
- All money for the scheme is collected and invested properly
Who are the beneficiaries of your pension scheme?
One of your legal duties is to make sure that all decisions are made with the scheme beneficiaries in mind. Current scheme members are not the only people to benefit from the pension scheme. To clarify, beneficiaries of the scheme can be:
- Active members who are currently building up benefits in the scheme
- Members who are currently receiving a pension from the scheme
- Deferred members who are not currently paying into the scheme, but who still have benefits in it
- Widows and widowers of members
- Members’ dependents, such as children or other relatives
- Anyone with a court order on divorce (for example a pension sharing order) who has been granted pension credits within the scheme
Furthermore, the employer may also be eligible for funding from the scheme if there is a surplus or if the scheme is wound up
So you can meet your duties, you’ll need to make impartial decisions. In particular, you’ll also need to consider if there are any conflicts of interest that could affect your ability to act impartially. Conflicts of interest could include being a director or shareholder of the company or being a scheme member. These conflicts of interest should be recorded when you take up the post to ensure they are managed effectively.
As a trustee, you’ll be responsible for ensuring certain information is reported to The Pensions Regulator. For example, you need to:
- Register your pension scheme within three months of setting up the scheme
- Complete the scheme’s return
- Report any breach of the law
- Report any notifiable event (defined benefit schemes only)
- Pay the levy
- Report any change or if you wind up your scheme
In addition, as a trustee you’ll also have certain tax-related responsibilities, including completing form SA970 and keeping financial records for up to six years.
What are the risks of becoming a pension trustee?
Pension trustees who are in breach of their duties or responsibilities to scheme beneficiaries can be held personally liable for any financial loss as a result of their actions.
Protect yourself and scheme members with Pension Trustee Liability Insurance
Pension trustee liability insurance gives you peace of mind that any financial claims against you can be paid without putting your home and other assets at risk. It can cover you for a number of related costs:
- Breach of trust, duty or statutory provision
- Maladministration, negligence or administrative errors
- Wrongful omissions, or misstatements
- Loss arising from damage loss or destruction of pension scheme documents for which the trustees are responsible
- Public relations expenses
- Civil fines and penalties, where insurable
- Court application costs
- Emergency costs
- Third party pursuit extension
Do I still need insurance if there is an indemnity and exoneration clause?
This clause will offer a degree of protection, but only to statutory limits. For example, it does not protect you from any breach of trust and will not indemnify trustees from civil fines and penalties. Pension trustee liability insurance offers unlimited protection for you. It also means that scheme members with valid claims are not left out of pocket.
Does pension trustee liability insurance cover actions from the past?
Most insurance policies will cover you for claims regardless of when the action arising to the claim took place. Speak to your insurance broker for clarification.
Insurance you can count on
Call our expert team at Park Insurance to find out more about insurance for pension trustees. We’ll create a robust liability insurance package for your complete peace of mind. In addition, we also offer a handy welcome pack for our customers, with lots of useful information for trustees. Please call us on 0117 9556835 or get in touch.