A “trust” is a legal arrangement under which trustees hold the assets of the pension scheme in a trust fund for the benefit of the members of the scheme, their dependants and for the main purpose of providing income in retirement.
Under trust law and the Pensions Act 1990, as amended, pension scheme trustees must ensure that schemes are run properly, and they must protect the rights of scheme members. Trustees must put in place an effective system of governance and internal controls and take reasonable steps to ensure continuity and regularity in the performance of the scheme or trust RAC’s activities, including the development of contingency plans. A Trustee’s primary responsibility is to act in the best interests of the beneficiaries of the trust. In a pension trust context this means acting in the pension scheme member’s best financial interest.
Trustees must be ‘proper’ being of good repute and integrity, and ‘fit’ collectively having adequate qualifications, knowledge and experience to run a pension scheme or trust RAC.
Main duties of pension scheme trustees under trust law are:
- Administering the trust in accordance with trust law, all other law and the terms of the trust deed and rules.
- Acting in the best interests of beneficiaries.
- Acting fairly between beneficiaries.
- Acting prudently and diligently.
- Exercising care and utmost good faith in all trustee duties.
- Seek professional advice as necessary.
- Supervise those to whom functions have been properly delegated.
- Not make personal profit from the trust
- Being aware of possible conflicts of interest.
Trustee Duties under the Pensions Act
Section 59 of the Pensions Act lays down the general duties of trustees of schemes and trust RACs as follows:
1. Ensuring contributions are received & invested - The Trustees require the employer to remit DC pension contributions within specific time limits, essentially 21 days of the end of the month in which they were deducted. The Trustees must ensure that these contributions are invested with the relevant investment managers within 10 days from the latest date by which the employer should have paid them. This does not apply to the employer contributions in respect of a Defined Benefit Scheme, which need to be paid within 30 days of the scheme year end.
2. To make arrangements for paying the benefits – The Act specifies that the Trustees should make arrangements for the payment of benefits as provided for under the rules of the scheme as they become due. An occupational pension scheme may provide benefits in some or all of the following circumstances.
- Retirement at or before normal pensionable age or due to ill health.
- Death before or after retirement
- Upon leaving service
3. To ensure that records are kept – Trustees should ensure that arrangements are in place for all membership records (current members, pensioners, deferred pensioners) to be kept in a manner which is complete and up-to-date and that the records contain all information to enable benefits to be calculated having regard to the scheme structure and the nature and types of benefits provided.
4. To undertake trustee training - Every trustee must undertake trustee training in accordance with the Pensions Act. Trustees are obliged to undertake trustee training within six months of their appointment and at least every two years thereafter.
5. To register the scheme – Trustees must register their scheme with the Pensions Authority and pay an annual fee. It is the responsibility of the of the Trustees to ensure that their scheme is registered, with registration details updated at least once a year.
6. To ensure that a registered administrator is appointed – Every scheme Trustee must appoint a Registered Administrator (RA) to provide key administration functions during a scheme year. The specific functions which must be carried out for trustees include the following:
- The preparation of annual reports
- The preparation of annual benefit statements
- The maintenance of sufficient records to provide such services
- Registered administrators are also required under the Disclosure of Information Regulations to submit to the Pensions Authority certain prescribed information annually (Annual Scheme Information (ASI)) concerning schemes and trust RACs on whose behalf they provide core administration functions.
To preserve or transfer benefits – Trustees must ensure that appropriate arrangements are in place to comply with the requirements of the Pensions Act in relation to the entitlement of early leavers to preserved benefits or transfer payments.
To ensure that the minimum funding standard is met – Trustees of a Defined Benefit Scheme should be aware of the effective date for the next actuarial valuation for the purposes of the funding standard and ensure that comprehensive data is submitted to the actuary within six months after the effective date of the valuation.
To give information – Trustees must ensure that the necessary arrangements are in place for the disclosure of information to members, prospective members, their spouses, other scheme beneficiaries and authorised trade unions which represent members. Details include scheme rules, basic scheme information & details of an individual’s benefit, availability of the Trustee Annual Report, actuarial valuations, annual audited accounts and certain information on the scheme investments.
To apply equal pension treatment – If certain scheme rules are found to be discriminatory, they must be changed in order to comply with statutory requirements.
Additional requirements are being introduced under the Codes of Practice issued by the Pensions Authority in November 2021 which we will address in a separate blog but includes that trustees should not lose sight of their existing duties and responsibilities under Trust Law and the Pensions Act
ITL Trustee Pension Consultant
*Please note this content is the view of the author and not of Independent Trustee Company