The Pensions Regulator

Guidance for trustees

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The trustees' duties and powers

Many of your duties as a trustee arise from trust law. These are your ‘fiduciary’ duties. Your powers derive from the trust deed and rules of the scheme.

This section of the guidance describes the main fiduciary duties and outlines the types power available to you:

• Acting in line with the trust deed and rules
• Acting in the best interests of the scheme beneficiaries
• Acting impartially
• Acting prudently, responsibly and honestly
• The trustees' powers

You can also find these topics in the Trustee toolkit, under The Trustees’ role.

Acting in line with the trust deed and rules

The trust deed and rules set out the trustees’ powers and the procedures trustees must follow. As a trustee, you must act in line with the terms of the trust deed and rules.

The trust deed is a legal document that sets up and governs the scheme. The scheme rules set out more detailed conditions, for example, the benefits that will be provided.

These are important documents, and trustees must be familiar with them and with other documents governing the scheme.

Acting in the best interests of the scheme beneficiaries

As a trustee you must always act in the best interests of scheme beneficiaries.

Who are the beneficiaries?

A ‘beneficiary’ is anyone who is entitled to, or who might receive, a benefit from the scheme, now or in the future.

Scheme beneficiaries can include:

• active members – employees who are building up benefits in the scheme;
• pensioner members – people who are receiving a pension from the scheme;
• deferred members – people who have left the scheme, but who still have benefits in it (for example, because they have not transferred all their benefits to another pension arrangement);
• prospective members – people who, if they go on to meet the eligibility conditions, may be entitled to join the scheme at a future date;
• widows and widowers of members;
• dependants of members – for example, their children or other relatives who financially depend on them;
• former husbands and wives of members who, as a result of a court order on divorce (for example a pension sharing order) have been granted pension credits within the scheme; and
• in some circumstances the employer who, for example, may be able to receive a payment from the scheme if there is a funding surplus or when the scheme is wound up.

Acting impartially

As a trustee, you must consider the interests of all the classes of beneficiary covered by the trust deed and rules and act impartially. This does not necessarily mean you should treat all classes in the same way; you will need to strike a balance so that, depending on the issue you are considering, you give appropriate weight to the interests of each class.

You should treat members of a class the same. When dealing with individual beneficiaries you will also have to weigh the interests of that individual against the needs of all the other beneficiaries.

Acting prudently, responsibly and honestly

This duty will touch on many aspects of your work as a trustee.

When you are acting as a trustee your duties are to the scheme. Regardless of any other position you may hold, your duty must not be to any group or individual that you are connected with, such as the employer or a trade union, or a particular group of members such as pensioner members. So, for example, the cash flow needs of the employer or negotiations between the employer and workforce representatives about pension benefits are separate issues and must not influence you while carrying out your trustee role.

Conflicts of interest

Conflicts of interest is a legally complex area and legal advice should be sought and conflicts managed. The consultation document: conflicts of interest guidance will be available on our website.

Acting prudently

The duty to act prudently means you must act in the way that a prudent person would in their own affairs. In doing so, you must use any skills and expertise you have. This duty is particularly relevant to selecting and dealing with the scheme’s investments, and this guidance provides more details in the section on investing scheme assets. 

Reaching decisions

When deciding whether to exercise a power you must consider the circumstances impartially, take account of all the relevant facts (ignoring all the irrelevant facts) and reach a reasonable decision. It may be appropriate to announce that decision to the members concerned promptly. It is usually good practice to record the factors that influenced your decision.

You should take professional advice on any matters which you do not understand and on technical issues which may affect the scheme.

Personal profit

You must not make any personal profit at the expense of the fund. This does not mean that a trustee cannot be a scheme member. The Pensions Act 1995 makes it clear that if you are a scheme member you can still be a trustee and benefit personally from a decision you and the other trustees have taken, as long as this will benefit members generally or a specific class of members.

The trustees’ powers

The trust deed and rules give the trustees powers, some of which will be discretionary. Trustees’ powers differ from scheme to scheme, but usually the trust deed includes the power to:

• accept contributions into the scheme;
• decide the investment strategy and invest the scheme’s assets;
• amend the rules of the scheme;
• admit members on special terms;
• increase (or ‘augment’) members’ benefits;
• deal with a funding surplus; and
• wind up a scheme.

In some cases the trust deed may state that the employer has to agree to your use of a particular power, or that you may only use the power if the employer asks you to do so.

Discretionary powers

A discretionary power allows the trustees a choice, for example to decide:

• who will receive a dependant’s pension;
• who will receive a lump-sum death benefit;
• whether to pay a pension on early retirement; and
• whether to accept a transfer into the scheme.

When considering whether to use a discretionary power, you should:

• check the limits of the power in the trust deed and rules;
• follow any procedures set out in those documents;
• ask for, and consider, all relevant information (ignoring irrelevant information) before reaching a reasonable decision; and
• take advice from your legal adviser if you have any doubts or concerns about using the power.

You must follow the procedures set out in the trust deed and rules when considering whether to use a discretionary power. For example, the rules may require you to seek medical advice before reaching a decision on whether to allow a member to retire early on ill-health grounds.

Delegating powers

You cannot usually delegate your powers, including your discretionary powers, unless the trust deed and rules allow you to do so. An exception to this is the power to delegate investment decisions found in pensions law.

Where the trust deed and rules allow you to delegate a power and you do so, you remain responsible for the actions taken. However, where you have delegated responsibility for investment decisions, your liabilities are generally more restricted.

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