Q. My company has a pension scheme; with the Pensions Act 2004 coming into force in April 2005 what are the main impacts and how can I prepare for it?
 
Emma Watkins of ACE Europe writes:

Most company pension schemes are set up as trusts in order to benefit from tax concessions and to ensure the assets are kept separate from those of the employer. A pension trust is normally created by deed and it is the trustees of the pension scheme trust that hold legal title to the assets of the scheme. They can either be:

• An individual trustee, i.e. a member of the scheme, an employee of the employer, or a professional trustee

• A corporate trustee, i.e. the employer itself, a company that has links with the employer, or a professional trustee company

The Pensions Act 2004 requires for all occupational schemes to have at least one third of its trustees membernominated and will remove the current employer opt out of these provisions from 5 April 2005. Companies should consider adopting member representation now.

However, this may prove more difficult than first anticipated. Trustees are the legal owners of the trust property and they have an obligation to the beneficiaries of the trust assets. As such, it is vital that trustees are aware of their legal duties and responsibilities. A number of consultants believe that the forthcoming legislation is ‘scaring off’ employees from becoming trustees as those who breach the numerous duties and responsibilities may place their personal assets at risk. So how can the best candidates be encouraged? Good communication on the support that will be offered will go some way. Training needs to cover areas such as a trustee’s duties and responsibilities, with additional focus on areas such as investment management. Sufficient time and resource is also required if the trustee is to take their role seriously. Leading law firm Reynolds Porter Chamberlain has also commented that trustees, “should be given access to liability insurance if high-quality candidates are to continue to take on the role.”

In today’s increasingly litigious society, effective risk management is therefore imperative. While other forms of protection are available (in the guise of indemnity and exoneration clauses), these are only effective between members and trustees. They cannot provide protection against claims from third parties or regulatory actions, nor can they provide protection for the potential resultant loss to the fund or employer. So, at best, the pension scheme or employer has to fund any loss; at worst the trustees’ personal assets are at risk.

Given this uncertainty those who take on this pivotal role of trustee should have access to an external, independent source of protection in the form of pension trustee liability insurance, which protects the assets of the individual trustee, the pension scheme, the sponsoring employer and its employees.