The role of the pension scheme trustee is crucial to ensuring a pension scheme is well-run. Trustees are responsible for the compliance, administration investment of the scheme. While these duties are often delegated ultimately the trustees are responsible for their pension scheme and must monitor their service providers.
One topical issue facing trustees of a pension scheme is to ensure that there are no conflicts of interest which has been described in terms of ‘lead us not into temptation’ rather than ‘deliver us from evil’.
The religious language serves to emphasise the moral and legal duties and responsibilities faced by trustees. Conflict of interest is a constant companion for pension scheme trustees, in particular if they are also employees of the sponsoring employer or members of the pension scheme or, as is often the case, both. This can be viewed as a conflict of interest versus duty.
The recent ruling by Mr Justice Charleton on the Element Six case has provided some useful judicial comment on conflicts of interest faced by trustees.
Trustees owe to the members of the pension scheme a duty of good faith and fidelity. Trustees are not entitled to put themselves into a situation of conflict of interest - ‘lead us not into temptation’. A situation of conflict can arise where the trustees are influenced by how they themselves may profit or benefit from any decision they make. Given the often overlapping roles of the trustees as sponsoring employers, employees and members how to deal with these multiple roles and manage potential conflicts of interest needs to be a regularly considered. It is better to anticipate and deal with potential conflicts of interest in advance than to later have to ‘deliver us from evil’.
During the Element Six case it was argued that conflict of interest may be overcome in three ways:
- By informed consent
- The natural operation of the scheme upon which the trust was founded
- Through express provision in the trust deed
On a practical level when trustees are considering potential conflicts of interest they should:
- Consider their specific situation
- Consider what is provided in the Trust Deed & Rules
- Know their duties & obligations
- Know the standard of care required of them
- Identify the potential conflict
- Declare any interest and have it registered or minuted
- Seek advice if necessary
- Consider any potential advisor conflicts
Once a potential conflict has been identified it can be managed by:
- Being permitted under the trust deed or as part of the natural operation of the scheme
- Getting fully informed consent from the beneficiaries/other party
- Use of confidentiality agreements
- Delegation to sub-committee
- Resignation of the conflicted trustee
- Court approval of the trustee decision
What is clear it that trustees will face potential conflicts of interest and need to have a process for dealing with them. When a pension trust is set up the sponsoring employer and members have an expectation that the trustees will act honestly and in good faith. Mr Justice Charleton summaries this trustee obligation “Clarity of conscience and ability to think both clearly and objectively is thus required on any decision that impacts on the management of the trust for the benefit of those for whom it was set up. No matter what is said in a trust deed, this fundamental obligation can never be departed from.”
Independent Trustee Limited (ITL) is an established provider of independent professional trusteeship services to occupational pension schemes for further information please contact Elma Fox at 01 614 8069 or email firstname.lastname@example.org.
This content contains the views of the author and not the views of ITC Limited.
*Please note this content is the view of the author and not of Independent Trustee Company