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Types of trustee
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.
There are different categories of trustees and you may be one or more of the following:
- Individual trustee – you will be one of several trustees responsible for running the scheme. This group is often referred to as a board of trustees.
- Corporate trustee – where the trustee is a company, 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.
- Member-nominated trustees (MNTs) or member-nominated directors (MNDs) – some individual trustees, or directors of a trustee company, may be nominated to be trustees.
- Employer-nominated trustees (ENTs) or employer-nominated directors (ENDs) may include senior employees like the finance director, where their financial experience and knowledge of the company may be helpful to the trustees or the directors of the trustee company.
- Professional trustees – individuals or corporate bodies who charge for their services rather than just reclaiming necessary expenses, or who hold themselves out as experts in trustee matters.
- Chair of trustees – in most schemes with defined contributions, the chair of trustees has the additional responsibility of signing the annual chair’s statement, indicating that the scheme is operating in line with the required governance standards.
It's reasonable to expect a professional trustee to have higher levels of experience and knowledge.
Duties and powers
Your key duties as a trustee are to:
Act in line with the trust deed and rules
The trust deed and rules, together with pensions legislation, tell you what your powers are as a trustee, and the procedures you must follow. They are important documents and, therefore, you must be familiar with them and with the other documents governing your scheme.
Act prudently, responsibly and honestly
You must act in a way that an ordinary prudent person of business would act in managing their own affairs. This means, for example, that when deciding whether to exercise a power, you must consider the circumstances impartially, having taken account of all the relevant facts, and you must ask for professional advice if necessary.
Naturally, you must not make any unauthorised personal profit at the expense of the fund. This doesn't mean that, as a trustee, you can't be a member of the scheme, but, as a lay trustee, you mustn't profit from the scheme in other ways.
Act in the best interests of your beneficiaries
You must act in the best interests of the scheme’s beneficiaries. A beneficiary is anyone who is entitled to, or who might receive, a benefit from the scheme, now or in the future.
You must consider the interests of all the classes of beneficiary covered by the trust deed and rules, and act impartially between them. You have to act fairly between individual beneficiaries too, weighing the interests of the particular individual against the need to protect the security of the beneficiaries as a whole. Acting impartially does not mean that each type of member needs to be treated in the same way. But it does mean that the trustee will need to weigh the differing interests of different members against each other.
Consider what powers you may have
The trust deed and rules give you powers, some of which will be discretionary. Trustees' powers differ from scheme to scheme, but usually the trust deed includes the power to:
- accept contributions into the scheme
- decide the investment strategy
- invest the scheme's assets
- amend the rules of the scheme
- admit members on special terms
- increase (or 'augment') members' benefits
- deal with a funding surplus (defined benefit only)
- wind up a scheme
In some cases the trust deed or rules may state that the employer has to agree to your use of a particular power, or that you may only use the power if the employer asks you to do so.
You may also have some discretionary powers, like deciding who will receive a dependant's pension. You must follow the procedures set out in the trust deed and rules when considering whether to use a discretionary power.
You can't usually delegate your powers including your discretionary powers, unless the trust deed and rules allow you to do so. An exception to this is the power to delegate investment decisions.
Where the trust deed and rules allow you to delegate a power and you do so, you remain accountable for the actions taken. However, where you have delegated responsibility for investment decisions, your liabilities are generally more restricted. This is as long as you can show that you and the other trustees took appropriate steps to satisfy yourselves of the matters set out above.
Trustee toolkit online learning
Go to the Trustee toolkit The tutorial 'Duties and powers' in the module 'The trustee’s role' will help you consider your duty to members and their money and what powers you may have. You must log in or sign up to use the Trustee toolkit.
You are responsible for:
- financial records and requirements
- your professional advisers and service providers
- pension scheme records
- registration, scheme return and collecting levy
- reporting certain matters to the regulator
Your role in a scheme offering defined contribution (DC) benefits
In schemes offering DC benefits the individual member has a lot of decisions to make about the way they save and what they do with their pension savings when they reach retirement age.
As a trustee of a scheme offering DC benefits, you have a responsibility to support your members in making informed decisions.
- ensure that provision is made for members who don’t choose an investment option
- understand the investment options you offer members and make sure they are offering appropriate fund choices
- help members to understand that how much they receive from the scheme is linked to how much they pay in
- encourage members to obtain advice and provide as much support as possible
- provide timely and relevant information to:
- prospective members about the scheme
- current members about their savings
- members approaching retirement about the options they have
Trustee toolkit online learning
Go to the Trustee toolkit The module 'How a DC scheme works (2014)' covers risks to good member outcomes, contribution structures, transaction processing, value for money, charges, decisions at retirement and member communications. You must log in or sign up to use the Trustee toolkit.
Your role in a scheme offering defined benefits (DB)
As a trustee of a scheme offering DB benefits, you have a responsibility to ensure there is enough money in the scheme to pay members’ pensions as and when they need to be paid.
To see how much money is in the scheme, you have to arrange for a ‘valuation’ to be carried out, no less than once every three years. This assesses the assets and the liabilities of the scheme. You need to appoint a scheme actuary to carry out this process. If the scheme is not fully funded, you must draw up a recovery plan and submit it to the regulator within 15 months of the effective date of the valuation.
The recovery plan sets out how much will be paid into the scheme and over what period.
In most cases, you have to agree the recovery plan with the sponsoring employer.
Trustee toolkit online learning
Go to the Trustee toolkit The module 'How a DB scheme works' covers how the benefits in a DB scheme are accrued and how they are calculated. You will also consider the strength of the employer covenant. You must log in or sign up to use the Trustee toolkit.