The issue of protecting trustees from liabilities has become increasingly topical since the Pensions Act 1995 came into force. The subject has again hit the headlines with the case involving the trustees of the Greenup and Thompson Ltd Pension scheme.
It was reported that the trustees had been ordered to personally repay £130,000 after being determined by the Deputy Pensions Ombudsman (DPO) to have been in breach of trust having authorised an unsecured loan to the sponsoring employer.
Insurance is playing an increasingly important role in protecting pension funds as evidenced by the recent claims. Before the Pensions Act 1995, most trustees relied upon exoneration and indemnity clauses to shield them from personal liability. Now, many trustees and sponsoring employers appreciate the financial comfort that an appropriately structured insurance policy can provide to the assets of the scheme and company as well as giving protection to individual trustees. The view has also been expressed that any scheme in deficit may be under an obligation to consider insurance.
To be of value, it is important to ensure that any insurance policy provides effective insurance protection with cover at corporate and personal level for all the parties involved in the management of the pension scheme.
“The purchase of properly drafted and comprehensive insurance policies can be a cost-effective means of protecting members benefits, the sponsoring employer, individual trustees, pension managers and internal administrators from losses resulting from claims, well-founded or not,” says Jonathan Bull, executive director of the Occupational Pensions Defence Union (OPDU). “In addition, effective risk management procedures can play a role in minimising liabilities which should be favourably taken into consideration by insurers.”