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Regulatory guidance

Regulatory guidance

Guidance for trustees

Introduction

In becoming a trustee of an occupational pension scheme, you are choosing to take on an extremely important role.

As a trustee, you are responsible for the proper running of the scheme – from the collection of contributions, to the investment of assets and payment of benefits. The scheme members look to you to make sure that the scheme is well run and that their benefits are secure.

This is a great responsibility, but help and advice is available from a range of sources, including your fellow trustees, your professional advisers, pensions organisations such as the Pensions Management Institute (who have a special trustee section), the National Association of Pension Funds and the Pensions Regulator, particularly through the Trustee toolkit and this guidance.

If you are a trustee, or are considering becoming one, you need to understand some basic details about pensions, trustees and the legal framework surrounding occupational pensions.

This section of the guidance looks at the following:

The Trustee toolkit covers this section in the first three modules: Introducing pension schemes, The Trustees' role and Pensions Law.

What is an occupational pension scheme?

An employer, or group of employers, can choose to set up an occupational pension scheme to provide pension and other benefits for their employees when they retire. If the employee dies, the scheme may provide benefits for their dependants.

Main types of occupational scheme

Occupational pension schemes in the UK are usually defined by the type of benefit they provide.

There are three main types:

  • defined benefit schemes (sometimes known as 'salary-related' or 'final salary' schemes);
  • defined contribution schemes (sometimes known as 'money purchase' schemes); and
  • hybrid schemes (mixture of defined benefit and defined contribution benefits).

Each of these can be funded by contributions from the employer only (a 'non-contributory scheme') or from both the employer and employee (a 'contributory scheme').

Other types of pension scheme

Other ways in which employers can provide retirement benefits for their employees include:

  • setting up a group personal pension scheme; and
  • offering a stakeholder pension scheme.

What is a trustee?

The law requires that most occupational pension schemes in the UK are set up as trusts. A trust ensures that the pension scheme's assets are kept separate from those of the employer. This is important for the security of members' benefits.

A trustee is a person or company, acting separately from the employer, who holds assets in the trust for the beneficiaries of the scheme. Trustees are responsible for ensuring that the pension scheme is run properly and that members' benefits are secure.

Types of trustee

  • If you are an individual trustee, you will usually be one of several trustees responsible for running the scheme; this group is often referred to as a board of trustees.
  • Where the trustee is a company (known as a corporate trustee), you will be a director of that company. However, you will have the same responsibilities as an individual trustee in relation to the scheme. The employer itself may be the corporate trustee.
  • Some individual trustees, or directors of a trustee company, will be nominated to be trustees by at least the active and pensioner members of the scheme. These are known as member-nominated trustees (MNTs) or member-nominated directors (MNDs).
  • Some individuals volunteer to be trustees and start with little knowledge or experience of what being a trustee involves. Often they will also be members of the scheme, employees of the sponsoring employer, or both.
  • Others are professional trustees who are paid for their services.

Who can be a trustee?

Generally, anyone aged 18 years and over, and legally capable of holding property, is eligible to be a trustee. There are some exceptions, which are described below.

Disqualification

A person is disqualified from being a trustee if:

  • they are convicted of an offence involving dishonesty or deception (unless the conviction is spent);
  • they are an undischarged bankrupt, or have entered into certain other voluntary agreements with creditors;
  • they have been disqualified from acting as a company director;
  • they have property in Scotland which is covered by a sequestration order;
  • the person is a company and any director of the company has been disqualified from being a trustee; or
  • the person is a Scottish partnership and any of the partners has been disqualified from being a trustee.

Scheme auditors and actuaries

Other than in a few exceptional circumstances anyone acting as an auditor or actuary of the scheme cannot be a trustee of the scheme.

Prohibition

The Pensions Regulator can prohibit a person from being a trustee of a scheme or schemes if we are satisfied that the person is not 'fit and proper' to act as a trustee. Our guidance on prohibition of trustees sets out our policy for deciding whether a person is fit and proper. We maintain a register of every person we have prohibited in this way.

The legal background

Trustees must act within the framework of the law. There are several types of law affecting occupational pension schemes, in particular:

Variations within the UK

References to pensions law in this guidance are to the law as it applies in England, Wales and Scotland. Northern Ireland has its own pensions law and references in this guidance to the legislation of Great Britain, includes the corresponding legislation of Northern Ireland. It should be noted that some areas of pensions law – such as pension rights on divorce and some aspects of trust law – are dealt with differently in Scotland.

European law

European law implemented by UK legislation and decisions of the European Court of Justice may also have an effect on pension schemes.

The law of trusts

The law of trusts has developed over many years through Acts of Parliament and through case law. The basis of trust law is that one group of people (the trustees) hold assets for the benefit of another group of people (the beneficiaries).

When applied to a pension scheme, trust law provides the foundation for how trustees must act in relation to the scheme. These are a trustee's 'fiduciary' duties.  The guidance on trustee's duties and powers tells you more.

Test your knowledge and understanding by going to the Trustee toolkit, especially the module covering 'The Trustees' role'.

UK law applying to pension schemes

Pension schemes are affected by specific legislation, including Acts of Parliament, and regulations. This law sets down detailed requirements on how pension schemes must be run and on the duties of trustees.

Two of the most important pieces of pensions legislation in relation to the role and duties of a trustee are the Pensions Act 1995 and the Pensions Act 2004, and the regulations made under them.

  • The Pensions Act 1995 reinforces trust law affecting how schemes should be run and increases the security of members' benefits.
  • The Pensions Act 2004 builds on this with the aims of further improving the security of members' benefits and standards of scheme administration, and strengthening the scheme funding requirements. Both Acts give trustees additional rights and duties, which we outline in this guidance.

Codes of practice

The Pensions Regulator has to issue codes of practice about certain requirements of the Pensions Act 2004, and may issue other codes if it wishes. The codes contain practical guidance on how to comply with the requirements in question, and set out the standards the Pensions Regulator expects.

A code of practice is not a statement of law: you do not have to follow it. You can choose to do things differently as long as you can demonstrate that your alternative meets the legal requirements. If a court or tribunal is deciding whether a particular requirement has been met, they will take the code of practice into account.