Trustees must not simply follow the lead of others, says Greig McGuinness, trustee representative at Dalriada Trustees
Would you jump into the Clyde if they told you to?
That was the expression used by many a Glaswegian mother over the generations in response to a child justifying bad behaviour by claiming they were merely following the actions of other children.
I was reminded of this common attempt of passing the buck, blaming it on the actions of others (one that I, of course, never perpetuated in my tender years!) following the Deputy Pensions Ombudsman’s recent determination on the complaint of Bridge Trustees against the previous trustees of the Pilkington’s Tiles pension scheme earlier this month.
In their defence, the trustees claimed that they were only acting as advised by Capita and were not responsible for any mismanagement. However, just like an astute Glaswegian mother, the office of the Pensions Ombudsman didn’t buy the trustees’ excuse.
Many of the legal commentaries I have read regarding this case seem to be amplifying how risky it is to be a trustee, which is no doubt an appetiser for selling a legal solution.
It is no riskier now than before for a lay trustee. The prescribed rules may be stricter but the underlying duty of care is no different and neither is the level of indemnity. If you are conversant with your scheme documents, have an appropriate understanding of pensions and trust law and take appropriate advice the protection is there. This is simply a trustee knowledge and understanding (TKU) issue.
In the case of Pilkington’s Tiles, a slush fund had built up in the scheme of around £193,000 from the employer portion of short service refunds. The rules state that the trustees can use that pool of employer-made contributions to meet the expenses of running the scheme (to pay the actuary, administrator, auditor, investment adviser, etc). However, what the rules do not permit is for those assets to be paid back directly to the employer.
This is where things went wrong in this case as the employer nominated trustee (ENT) did just that and paid it directly to the employer over two payments (the first for £187,000 on Christmas Eve 2009 and the second for £6,000 11 March 2010) allegedly without the knowledge of the member nominated trustees (MNT) purportedly on the advice of the administrator.
They should have known it was against the rules; they should have known that the administrator was not qualified to give that advice; there should have been better controls in place.
Added to that on 12 January 2010 the Trustees agreed to effectively lend the employer a further £205,000K to pay the 2008 PPF levy. The employer has since become insolvent and the scheme was assessed for PPF entry.
Not surprisingly the Deputy Ombudsman found that the employer nominated trustees had not fulfilled their duties as trustees or acted in the interests of the beneficiaries and were not covered by the scheme’s indemnity clause. They have been ordered to pay the £193,000 back to the scheme.
The moral is if you are concerned about risks make sure you don’t take them. Have the correct governance structure in place, know your scheme, know the law and take appropriate advice. If you are concerned that your current trustees lack in any way, make sure they have the proper support and training or call a professional.
Otherwise you may, figuratively speaking, end up in the Clyde and incur a mother’s wrath from the powers that be.
Greig McGuinness, trustee representative at Dalriada Trustees