Occupational Pension Schemes-Trustees’ Responsibility

Occupational pension schemes are managed by way of trusts in order to avail tax benefits and to ensure that assets of the pension scheme are kept distinctively from employer’s assets. This fact sheet will outline the responsibility of the Trustee of occupational pension scheme. It is right of employees that they should have confidence as their funds are being managed well. It becomes the duty of the trustees to ensure that the funds are handled honestly and to the best of use in order to benefit members.

Occupational pension schemes are treated under The Pensions Act 1995. Additional changes have been implemented by The 2004 Pensions Act and The Pensions Regulator (TPR) introduced in April 2005. TPR has set out the objectives of pension legislations as:

Protecting benefits of members of work based pension schemes or direct payment arrangement personal pension schemes
Encourage an efficient administration of work based pension schemes.
Prevent situations of compensation claims that are paid out from Pension Protection Funds.
Ensure employers comply with their duties set out under Pensions Act 2008.
Application of part 3 of Pensions Act 2014 that seeks to minimize adverse impact on the sustainable growth of employer. The sustainable growth objectives are in effect since 14th July 2014.

TRP has three regulatory aspects:

Identifying and monitoring risks by gathering information and investigating schemes
Taking corrective actions where problems have been identified
Ensuring employers do not avoid their pension obligations

TRP also outlines guidance for trustees, auditors and actuaries. The Pensions Act 2008 makes it duty of employer to automatically enrol employees in ‘qualifying auto-enrolment pension scheme’ and manage contributions on their behalf. Enrolment can either be in an occupational scheme or contract based.

The contract based schemes are group personal pensions where pension provider is appointed by the employer. Usually insurance companies are appointed as pension providers responsible for running the scheme. Employers can use The National Employment Saving Trust (NEST) to auto enrol employees in pension scheme. NEST is government held pension schemes.

Largest employers should comply From 2012. The smaller companies will need to start compliance in between 2012 and 2018. The deadline is determined by the number of people in PAYE scheme.

PENSION SCHEME CLASSIFICATION:

PENSION schemes can be classified as occupational schemes, group personal pension schemes and stakeholder schemes. The last two are essentially personal pension plans that are registered in individual members name. Employers in such cases act as administrator and there are no legal requirements for accounting or audit in these types of schemes.

THE ROLE OF TRUSTEES:

Trust are instrumental to pension schemes in as much as they provide tax advantages and ensure that assets of the pension scheme are kept separate from those of the employers. An appointed trustee who acts separately from the employer holds the control of assets on behalf of the beneficiaries of the pension scheme. It is duty of the Trustee to ensure proper management of pension funds and security of members’ benefits.

The new regulations applicable from April 2016 make it necessary for the Trustee to have knowledge and understanding of laws and regulations relating to pensions and trust, the funding of pension schemes and the investment of scheme assets. They should be aware of trust deeds and rules and be familiar with the statements of investment principles and funding principles.

TPR also outlines code of practice for trustees. Trustees are required to undertake appropriate training to continue with their learning and remain updated with latest laws. A new Trustee has 6 months from the date of appointment to comply with these requirements.

TRUSTEES’ DUTIES AND RESPONSIBILITIES:

A trustee is required by law to act impartial, prudent, responsible and honest to the effect of best interest of the beneficiaries of the pension scheme. He should comply with trust deeds, rules of the scheme and legal regulations surrounding the pension schemes. It is their duty to ensure:

Contributions are added to the funds on timely basis
Financial records are complete with regards to annual reports and audit. Right benefits are paid on time.
The Pension Fund is invested in accordance to the scheme’s investment principles and relevant laws.
Professional Advisors are hired to offer specialist advice regarding running of the scheme
Records of all past and present members, transactions and Trustee meetings are kept complete and accurate
Members must have transparency of information regarding any aspect of scheme and their personal benefits
TPR is provided with information required by law for the register that the scheme’s annual return is complete and annual levy has been paid.

RELATED MATTERS:

Reporting to TPR: it is the duty of the Trustee or any other person involved to report to TPR if he or she notices a breach of law taking place. Code of practice 01 outlines factors that should be considered when deciding to make a report. Additionally, other ‘notifiable events’ should also be reported to TPR.
The Annual Report: it is duty of the trustees to make sure that annual report is available within 7 months of the year end of the scheme. The report should contain administrative information, governance information, details of accounts and audit and trustee’s report regarding investment and legal and administrative aspects about the scheme.

TRUSTEE’S LIABILITY:

TRUSTEES are held personally liable for losses occurring as a result of breach of trust. This may cover unauthorised acts on part of trustee, failure to perform action duties under the trust deed and scheme rules, and a failure to comply with trust law of pension legislation. Test of ‘sufficient care’ will be applied . In some cases the employees provide indemnity insurance for the trustees.

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Occupational Pension Schemes-Trustees’ Responsibility

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