The Pensions Regulator

Pensions Regulator publishes draft conflicts of interest guidance

Ref: PN08-04
22 February 2008

The Pensions Regulator has today (Friday) published a consultation document on guidance relating to conflicts of interest.

The draft guidance is designed to help trustees of occupational pension schemes assess the adequacy of governance arrangements they put in place to manage conflicts of interest - which may arise when a personal interest or duty to another party conflicts with their fiduciary duty to the scheme.

These conflicts can inhibit open discussions or result in decisions, actions or inactions that are not in the best interests of the beneficiaries. Conflicts of interest may affect not only trustees but also professional advisors and pensions managers involved in running the scheme. The guidance therefore also covers these types of conflict.

Tony Hobman, chief executive, said: “Robust processes to identify, monitor and manage conflicts are integral to a well governed scheme. Effective governance of conflict of interest by trustees is critical to helping us achieve our objectives of protecting members’ benefits and promoting good scheme administration.

“We recognise that many conflicts are inherent by their very nature. The key is managing conflicts appropriately, and to do this there must be a culture of openness. In some circumstances where there are acute conflicts these may need to be avoided entirely. Trustees should regularly assess policies and procedures they have in place to make sure they are well prepared to identify and handle conflicts as they arise.”

The key principles covered in the guidance are:

• Understanding the importance of conflicts of interest;
• Conflicts of interest policy;
• Identifying conflicts of interest;
• Evaluation, management or avoidance of conflicts; and
• Managing adviser conflicts

We welcome responses to the consultation which should be submitted by 30 May 2008.

Editor's notes

1. This guidance does not provide legal advice nor replace the requirement to seek independent legal advice tailored to the specific circumstances of the trustees’ situation.
2. The regulator expects conflicts to be resolved amicably 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 action.
3. In some situations the conflicts of interest may be so acute or pervasive it would be better to avoid them entirely, for example by the appointment of an independent trustee in place of a trustee with an acute conflict.
4. The guidance supplements the information provided in the regulator’s e-learning programme and Trustee, Knowledge and Understanding (TKU) framework (code of practice, scope and syllabus).
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 pensions in the UK, with wide-ranging and flexible powers under the Pensions Act 2004.
   The powers of the Pensions Regulator include the ability to:
7. • collect more detailed scheme information;
   • issue improvement notices and third party notices, enabling the  regulator to ensure problems are put right;
   • freeze a scheme that is at risk, while the regulator investigates;  and
   • prohibit trustees who are judged not fit and proper to carry out  their duties.

   • The Pensions Act 2004 also imposes a statutory obligation on 'whistleblowers' to report suspected breaches of the legislation to the regulator.