With substantial assets under their control and the retirement welfare of members contingent on the prudent management of pension schemes, the role of trustees is extremely important.
Several high-profile cases recently have also underlined the power trustees have to ensure employers take their responsibilities seriously.
In July, for example, the trustees of Omega Pharma won a landmark ruling when they took an action against the principal employer in the scheme.
The trustees successfully claimed a total of over €2.2 million owed to the scheme following notice by the employer that it was terminating contributions and winding up the scheme.
Being a trustee is an onerous task and it is not a role to be taken lightly agrees PwC’s Munro O’ Dwyer.
“The best trustees are the ones who question everything and are not fobbed off easily. Pensions can be a very complex area and it can be tempting to just nod in agreement but sometimes asking the simple, seemingly naïve questions can actually be very effective,” he says. “In the UK, it is actually a requirement that you negotiate robustly with the employer,” he adds.
Frank Downey of pension consultants Invesco says that diversity is a key requirement in a group of trustees.
“Some financial acumen is important certainly but equally important is the ability to be able to interpret the advice provided,” he says.
The role and scope of trustee varies with the nature of the scheme. Some schemes allow greater powers in determining rates and have safeguards in place to avoid employers pulling the plug.
Defined benefit schemes, where the aim is to provide a guaranteed income at retirement, have different issues from defined contribution schemes where member benefits are determined by market performance.
With defined benefit schemes proving increasingly unaffordable, employers are looking to restructure into defined contribution scheme. Trustees have a key role here as most trust deeds cannot be amended without the consent of the trustees. In reality, this typically involves a robust renegotiation with the trustees asking the employer to explain why the current benefit structure has become unaffordable or unsustainable and outlining plans to ensure that further reductions in scheme benefits will not take place in the future.
From February 1st 2010 trustees have been obliged to undertake trustee training every two years. Newly appointed trustees are required to do initial trustee training within six months of their appointment and existing trustees also have to do periodic refresher training. Failure to do so can result in significant fines. The introduction of this legislation led to a flurry of trustee programmes at the time.
The trustees of every scheme are also required to appoint a registered administrator to provide core administration functions including the preparation of annual reports and benefit statements and maintenance of member records.
This is designed to facilitate better administration of pension schemes and allows trustees to concentrate on their other duties including the overall governance of the scheme, investments and funding and so on. There are 190 registered administrators.
The Pensions Authority, the statutory authority that oversees this area, carries out annual inspections. Last year it did 23 on-site inspections and reported that, by and large, the level of compliance was good and indicated a marked improvement on the previous year.
In a recent report it noted: “There has been a considerable improvement in standards in recent years because of changes in attitude to compliance, higher service standards and, to some extent at least, the introduction of Pensions Act fines and the regulation of pension administrators since 2008.”
“In modern defined contribution schemes, record keeping is usually good. The main administration issues arises in relation to old defined benefit schemes and possibly those that were administered in-house by the employer itself, particularly for deferred members,” says Downey.
“A real issue for pension administrators is tracing deferred members. What could help would be a formal national tracing service and a national register of deaths.
“In many cases, we are relying on the Department of Social Welfare to help trace members and they do their best to help but this is a manual and time-consuming service,” he says.
