What are the key duties for a trustee throughout the year?

It used to be relatively straightforward being a trustee of a defined contribution (DC) single-trust occupational pension scheme (or DC Section of a hybrid scheme), but I’d be surprised to find anyone who still believes that. It’s become far more challenging for trustees in the last few years, and the outlook isn’t bright.

Although we strongly endorse The Pension Regulator’s goal of ensuring these schemes are well run and providing value to members, this is now increasingly time-consuming, complex, and also risky (although we do hope the scheme’s sponsoring employer has suitably indemnified its trustees against the major risks and unintended consequences).

A trustee of a DC scheme or section has to meet with their trustee board colleagues several times a year to consider the following matters, which are all mandatory:

  • Monitor the employer. Ensure the sponsoring employer has paid the contributions it agreed to and confirm this in the annual contribution schedule signed by the chair of the trustee board. Trustees should also have a good understanding of the sponsoring employer’s financial position and ability to continue to pay contributions, and in some cases additional expenses where these are explicit. (ANNUAL)

  • Contribution investment. Check that contributions have been invested correctly and on time in members’ accounts via reports from the scheme administrator. (ANNUAL or more frequently)

  • Monitor administration. Monitor the performance of the scheme administrator and compare against service level agreements, with a focus on core financial transactions. (ANNUAL or more frequently)

  • Monitor Investment. Monitor the performance of the scheme’s investment manager(s) against growth and risk (volatility) benchmarks, and ensure they are managing the scheme’s assets in accordance with the Statement of Investment Principles. Regular monitoring is essential, and an experienced investment adviser is usually required to help the trustees to spot trends or deficiencies, and make recommendations if changes are needed. (FREQUENTLY – quarterly monitoring is recommended)

  • Value for members. The trustees must review the scheme to ensure that it is providing value to members considering charges, investment, communication, governance, scheme management, and administration. The trustees need to have a firm understanding of members’ needs in order to ensure they are provided for by the scheme. This is fundamental to running a quality scheme. Trustees should continually strive to improve value for members.

  • Prepare Report & Accounts. Arranging for audited accounts to be produced for the scheme, if required, reviewed by the trustees and signed by the chair. Not all schemes need this, and most types of ‘insured’ or ‘bundled’ schemes require contributions to be audited rather than fully audited accounts. (ANNUAL WHERE REQUIRED)

  • Chair’s Statement. Issuing a statement to members from the chair of the trustee board, known as the Chair’s Statement. This must inform members about how the scheme has been run in the previous ‘scheme year’. It’s essential this covers such matters as contributions, investments, value for members, pension scams and risks to members, retirement options, where to seek further information, confirmation of each trustee’s experience and training, and confirmation of the scheme’s advisers. This needs to be published on a website which can be found through a search engine and accessed by members without requiring a password. ANNUAL (to be issued within 7 months of the scheme year-end).

  • SIP. Reviewing the scheme’s Statement of Investment Principles with the assistance of the scheme’s investment adviser. This needs to be published on a website which can be found through a search engine and accessed by members without requiring a password. TRIENNIAL (or sooner if a significant investment change has taken place).

  • NEW Implementation statement. From October 2020 trustees will be required to report on how their investment managers have performed in line with the Statement of Investment Principles. This must cover details of how the managers have exercised their voting powers alongside wider Ethical, Social and Governance issues.

  • Scheme data. Reviewing the scheme’s data to ensure that member records are accurate. It’s particularly important that all member address details are correct so that they continue to receive information from the trustees and administrator. Scheme data should be reviewed at least every three years and steps taken to correct any gaps or errors. TRIENNIAL (or sooner if errors or omissions are reported).

  • Scheme Return. Ensuring that the annual scheme return is completed on time and filed with The Pensions Regulator. This is a report on a scheme’s status, membership and assets along with details of the trustees, sponsoring employer, and advisers. It is the trustees’ duty to ensure it is filed on time, although in practice the scheme administrator often undertakes the task on behalf of the trustees. (ANNUAL or in response to a return request from The Pensions Regulator)

  • Risk management. Trustees must regularly consider the risks applying to their pension scheme, and how these affect the benefits which the scheme is required to pay to members. Several risks of different types affect DC pension schemes, and it is up to the trustees to decide what actions to take to remove or mitigate any risks which are a threat to members’ benefits. These include the sponsoring employer becoming insolvent or being unable to pay contributions or expenses; investment; inflation; economic , legal and political risks. Trustees would usually consult professional advisers in respect of each key area, but the responsibility for managing risks in a pension scheme lies with the trustees. (ONGOING – every trustee meeting should include risk consideration)

  • Conflicts of Interest. Conflicts of interest must be considered, and each trustee must be vigilant in considering whether their own potential conflict of interest affects their decisions as a trustee. This is particularly relevant to trustees who are senior officers of the sponsoring employer. Conflicts must be declared, and the trustees must have a plan to resolve any conflicts presented. (ONGOING – every trustee meeting should consider potential conflicts of interest).

  • Knowledge and Understanding. Trustees are individually responsible for ensuring that their knowledge and understanding is kept up to date; particularly in respect of understanding their pension scheme, having a working knowledge of their scheme rules and key documents, being aware of current pension regulations, and awareness of their key duties as a trustee. Trustees must undergo regular training in any areas where their knowledge is lacking, as well as maintaining general awareness of occupational pension matters through research and briefings from professional advisers. Relevant training or development should be recorded in the scheme’s trustee training register. It is the duty of the chair of trustees to assess the knowledge of the other trustees on at least an annual basis. (ONGOING – every trustee meeting should include an update and reminder on trustee training and understanding)

In practice these key trustee duties are often tracked through a central document such as a Trustee Calendar or Trustee Business Plan. This may be maintained by the trustees or by one of their professional advisers on their behalf.

For each individual trustee, keeping up to date with the fast-moving world of occupational pensions and demonstrating that they are competent is perhaps the most challenging area of all. It is also a key focus area for The Pensions Regulator, with frequent changes to policy designed to ensure that all pension trustees are fit to perform this important role. This is challenging enough for us as pension professionals, but many trustees and member nominated trustees are balancing this alongside their day job.

Appointing a professional trustee can clearly help with ensuring that a scheme is well run, particularly if the professional trustee is appointed as sole trustee or as the chair of the board of trustees. This doesn’t remove any of the responsibility of the other trustees, but it can provide leadership and experience.

We certainly wouldn’t wish to discourage anyone from becoming an occupational pension scheme trustee, or from remaining in their current trustee role. However, the responsibility needs to be taken very seriously given the time and focus it deserves. It is clear from its direction of travel that The Pensions Regulator is dissatisfied with the way in which some schemes have been managed. The Regulator is taking an increasingly stark view that many trustees are unsuited to the role or that some schemes are no longer fit for purpose.

However, it’s not all bad news and there are some very good solutions available to support trustees with governance and compliance.

We would be very pleased to discuss this subject with any sponsoring employer or trustee who has concerns about their scheme or their responsibilities.

Get in touch

Posted by Mark Bowen

Topics: Pensions, trust-based


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