About Pension Trustee Liability

Responsibilities

Pension fund trustees are charged with the administration of the trust's governing documents and the handling and disposition of funds in trust. They have a duty to avoid acting negligently, which is defined as the conduct of a reasonably competent professional. They also have a fiduciary duty. Liability for damages for breaches of this kind can easily run to tens, or even hundreds of millions of pounds.

Trustees seek protection from liability by incorporating in trust deeds exoneration clauses, which generally operate to exclude liability arising out of breach of fiduciary or other duty provided it is innocent.

Recently sentiment has swung against reliance upon such provisions as their successful operation usually entails loss to the fund and thus to the pensioners themselves.

Myners Report

In March 2000, the government commissioned Paul Myners to review institutional investments in the UK and his report was published in March 2001. The report made certain recommendations and following consultation with the Government, the Government has published a series of 'Principles for Institutional Investment Decision Making'.

For final salary pension schemes, recommendations were made in respect of decision making, objectives, asset allocation, bench marking, performance management, expert advice, activism, transparency, reporting and choice of default fund.

The intention of the review is: -

To raise the standard of care for pension fund trustees to that of someone competent to make investment decisions. This is not necessarily supposed to be the standard of a professional but trustees will be expected to have the appropriate expertise or training so that they can ask intelligent questions of their advisors
To make it a duty for both fund managers and trustees to intervene in an under performing investee company when it is in the interests of shareholders or beneficiaries to do so. Whilst the guidelines are purely voluntary, it is expected that some form of legislation along the above lines will be introduced at some stage.

What the policy covers

The policy provides protection for:

The assured against liability for loss from a wrongful act
The trust and the employer company where they are permitted and required to indemnify the assured by any provision in the trust deed (including but not limited to any exoneration clause)
The assured for legal representation at official investigations, examinations or other proceedings
The trust following a fidelity loss

Other standard features include cover for:

Loss of documents
Defence costs
Indirect impact on spouses and estates of trustees
Fines and penalties imposed by any pensions regulator, where this is permissible

Together with:

A definition of trust to embrace all pension arrangements relating to the employer's business which have been declared to and accepted by the underwriters
A broad definition of assured which includes the trust itself and the employer
Employee cover where conduct of an employee results in being treated as a trustee in law

The undernoted optional extensions are also considered:

The trust for the consequences of a dishonest act by a trustee or an employee (but not a director) of the trust or employer company
The trust for the cost of pursuing claims against service providers for their breach of duty to the trust
The trust in respect of the theft of its property