Pension News 01/07


Richard Williamson Chairman PNPF Trustees

As a result of comments from members Richard has identified a need to explain the role of trustees and hopes that the following will clarify the key issues.

Representative or Trustee?

One of the comments often made by Pilots is “we want our representative to be a trustee”. This statement could be construed as a contradiction in terms because trustees have a duty of care to all members of the fund and are required to follow legislative guidelines. Representatives have a duty to the people they act for.

If a trustee acted as a “representative” to look after the interests of particular pilots he would be in breach of trust and could be disciplined or prosecuted.

Fund valuation

At the time of the last valuation, held under the Minimum Funding Requirement (MFR) rules, the PNPF was 100% funded but under new calculations it has an on-going deficit of £105M.

The recommendations of the Regulator, when dealing with a deficit, are that trustees are duty bound to reduce /eliminate the deficit as quickly as possible which is why we have agreed to a voluntary arrangement with the “Participating Bodies” and have embarked on a new investment strategy to help reduce the deficit.

Trusts and Trustees

Trust law has existed for centuries and the principles have become established as a result of court cases and the following examples may help to clarify the term:

Cowan v Scargill (High Court) 1984 “The duty of trustees to act in the best interests of the present and future beneficiaries of the trust is paramount. This almost certainly means best financial interests”.

Martin v City of Edinburgh District Council (Court of Sessions, Scotland) 1989 “Whilst trustees cannot be expected to set aside completely all personal preferences and conscientiously held principles, they must exercise fair and impartial judgement on the merits of the issues before them”.

Defining a Trust

One text book definition of a trust is that ‘a trust is an equitable obligation binding a person (who is called a trustee) to deal with property over which he has control (which is called the trust property) for the benefit of persons (who are called the beneficiaries) of whom he may himself be one.

The most important principle is that one person is holding assets for the benefit of others. In the case of a pension scheme, the trustees are holding the pension fund assets for the benefit of the members and their first duty is to them. The term ‘Members’ includes not just active members paying into the scheme, but also people with deferred pensions and those who are drawing benefits.

Duties, responsibilities of a Trustee

The fundamental duty of a trustee is to make certain the provisions of the trust deed are adhered to. Any trustee failing to do this is in breach of trust.

Other duties:

· Paying the right benefits at the right time

· Keeping accurate records of members and dependents

· Keeping proper accounts

· Ensuring scheme assets are properly and prudently invested

The Pensions Act 1995 placed thefollowing key responsibilities on trustees

Appointment of professional advisers:

Scheme Actuary

Scheme Auditor

Fund Manager


Legal Advisor

Investment of scheme’s assets:

Trustees have complete power to invest scheme assets as if they were their own, subject to their duty of care, the taking of proper advice from qualified advisors, any scheme restrictions and the statuary restriction that no more than 5% of the market value of the fund may at any time be invested in employer related investments.

New regulations to comply with the EU Directive on pension schemes, from late 2005, require the trustees to invest predominately in regulated markets and to ensure proper diversification.

Statement of Investment Principles (SIP):

Trustees must prepare and maintain this statement after taking advice from an experienced investment adviser and after consulting the employer it must include :

· Kinds of investment to be held and the balance between them

· Risk and expected return

· Realisation of assets

· The trustees’ policy on socially responsible investments and the exercise of voting rights.

· Compliance with scheme funding legislation. Since 22 September 2005when MFR ceased, legislation now dictates that a triennial valuation must be carried out with liabilities valued on a basis determined by the trustees as appropriate for their own scheme.

· Disclosure of pension scheme information. Under UK pension law, scheme trustees are required to make a substantial range of information available to scheme members. Although as trustees we delegate most of these duties to the secretariat we are still responsible for them being carried out.

In all the articles I have read I have never come across a description of a trustee as

being a “representative”

The Pensions Regulator

In April 2005 responsibility for monitoring occupational pension schemes was

transferred to the new Pensions Regulator who has wide powers to conduct

investigations and can impose severe penalties for non-compliance with

legislation. The demands of the Regulator have therefore focused the trustees’ attention for an increased requirement for training and understanding and to complete the new “e”

learning course. Our expertise is now demanded rather than assumed, with the onus being on the trustees to prove they have the required training and understanding. The duties of a trustee are therefore onerous and not to be taken lightly; we take our responsibilities very seriously and will always act to the best of our ability in accordance with trust and case law, legislation and best practice.

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