The Pensions Regulator

Conflicts of interest guidance published

Ref: PN08-22
1 October 2008

Following extensive consultation, the Pensions Regulator has published guidance to help trustees of occupational pension schemes and employers identify, monitor and manage conflicts of interest.

Conflicts arise in the trustee governance model because many trustees have a stake in the scheme or its sponsoring employer. If not managed effectively, decisions may be taken that put the interests of the beneficiaries at risk, or subsequently prove to be invalid. The regulator's aim is to help trustees identify, monitor and manage conflicts to avoid such consequences.

The guidance includes five high-level principles which will assist trustees with conflicts management arrangements:

• Understanding the importance of conflicts of interest

• Identifying conflicts of interest

• Evaluation, management or avoidance of conflicts

• Managing adviser conflicts

• Conflicts of interest policy

Alongside the full guidance, the regulator has also produced a summary guidance document to convey key messages regarding the governance of conflicts of interest.

Chris Dobson, Pensions Regulator executive director, said: "The management of conflicts of interest is key to good scheme governance. While we recognise that many schemes have robust procedures, evidence suggests that there are aspects of conflicts management where further attention is required.

"There should be a culture of openness – disclosure of conflicts should be embraced, not ignored, and we expect all conflicts of interest to be resolved sensibly. Where a conflict comes to the attention of the regulator, we may take action where appropriate.”

This guidance supplements information provided in the regulator's e-learning programme the Trustee toolkit and the Trustee, Knowledge and Understanding code of practice and Scope."

Editor's notes

1. The publication of the final conflicts of interest guidance documents and consultation report follows an extensive consultation, launched on 22 February 2008. There were 42 responses from a cross-section of interested parties. To view the consultation report, visit the regulator's website.
2. The guidance is relevant for all trustees of occupational pension schemes and employers, and also may be of interest to scheme advisers. While the principles may be applicable to most schemes, we understand that there cannot be a 'one size fits all' approach. It does not address conflicts which may arise in contract-based arrangements, as these may differ considerably.
3. The guidance does not provide legal advice nor replace the requirement to seek independent legal advice tailored to the specific circumstances of the trustees' situation, where appropriate.
4. The regulator expects conflicts to be resolved sensibly between employers, trustees and their advisers. Where an actual or potential conflict which comes to the attention of one of our regulatory teams presents a significant risk to members' benefits, we may decide to take appropriate action.
5. The guidance has been produced in response to our thematic review of scheme governance which identified conflicts of interest as a priority area. We announced our plan to produce guidance on conflicts when we published our results of the 2007 Governance survey in July 2007.
6. The Pensions Regulator is the regulator of work-based pension schemes in the UK, with objectives to protect members' benefits, promote good administration and reduce the risk of calls on the Pension Protection Fund. Our approach is risk-based focusing on education and enablement, with enforcement where appropriate. We have the ability to:
7. • collect information about pension schemes; through scheme returns, under the scheme funding regime and as well as statutory (including whistleblowing) reports;
   •  issue notices requiring actions to tackle non-compliance, prohibit trustees who are judged not fit and proper to carry out their duties or appoint independent trustees;
   • direct pension schemes as to how to calculate their liabilities and the contributions required;
   • issue a contribution notice where there is a deliberate attempt to avoid liabilities, or a financial support direction where the employer is a service company or insufficiently resourced.