Most trustees (both company and member nominated) take on the role and related responsibilities out of a sense of care for employees and members and with a view to protecting and providing for the Scheme members in their retirement.
However the requirements have become more onerous over the past few years and a couple of current developments have added to the burden and may result in trustees feeling they are “walking a tightrope” of trying to act in the best interest of the members whilst complying with their trustee duties:
No trustee will be unaware of the Pension Regulator’s “Scorpion” Campaign to protect pension scheme members against scams over the past few years with the focus on so called pension liberators which in extreme cases have resulted in victims losing their hard-earned pension savings whilst facing additional tax charges and penalties.
The Regulator has produced material such as member leaflets containing warning signs and an action pack for trustees and administrators setting out their current advice which is available at www.thepensionsregulator.gov.uk/trustees/pension-scams-trustees. In addition new regulatory requirements have been put in place such as confirmation that independent financial advice has been received in respect of some transfer requests.
For trustees there is a duty to act in the members’ best interests so safeguarding against pension scams on the face of it appears straight forward but there are other duties and restrictions which may hinder the trustees’ actions:
- A members’ right to request a transfer value to an appropriate pension scheme and the trustees’ duty to process that transfer within the statutory six-month time period. Although the Regulator has confirmed it cannot waive this legal duty, it will consider providing a time extension following an application made within the time period if the trustees have not been provided with the information they require to undertake their due diligence and make the transfer.
- The trustees (including their advisers, administrators and secretary) are not in a position to provide the member with financial advice themselves. The FCA regulates firms and individuals who provide financial advice (as well as those responsible for operating SIPPS, personal and contracted based stakeholder pension schemes).
The Regulator’s Warning Signs which would require further investigation (albeit themselves do not necessarily mean there is a scam occurring) as set out in their action pack for trustees and administrators including:
- Newly registered for tax purposes (or not registered at all)
- SIPP scheme operator not authorised by the FCA
- Newly established SSAS where the member is a trustee
- Sponsoring employer who is newly registered, dormant or geographically distant from the member
- Sponsoring employer who doesn’t employ the member
Connection to an unregulated investment company
- Scheme Promotion
- Refers to loans, advance, incentive, bonus, loophole, government endorsement
- Alludes to overseas investments or hints at unusual/creative investment techniques
- Has been contacted by an introducer, advised by non-regulated adviser or not advised at all
- Pressures for a quick transfer and/or refers to other transfers to the receiving scheme
- Does not have any transferring scheme documentation
- Has been advised that they can obtain early pension access, misled about potential tax consequences or advised no contributions will be required
From April this year, the law governing pensions became a lot more flexible – in general allowing people to take cash from their pension when and how they want to suit their own lifestyle – and trustees and employers may be keen to provide these flexibilities to members of their pension schemes.
However, again there are a number of elements which may prevent these flexibilities being accommodated within occupational pension schemes:
Duty to all members
The additional burden on the Scheme (trustees, employers, advisers and administrators) together with the related costs to ensure that the administration of the flexible benefits including record keeping and related tax payments may be such that they outweigh the provision of these flexible benefits for those members who take up those options.
Concern for the individual members
As mentioned above in respect of pension scams, the trustees etc are not authorised to provide the members with any financial advice and should always refrain from doing so. Again, as with pension scams, this will not prevent these parties being concerned that the members decisions may not be appropriate to their lifestyles and by facilitating these options they may be enabling the members to make inappropriate decisions which could significantly affect their quality of life in longterm retirement (which in turn contradicts why the pension scheme will have been established and made available to the members in the first place).
Being a trustee is never an easy role but it is good to see that the Regulator and other bodies (such as Pensions Wise, NAPF, the Association of Member Nominated Trustees) continue to be supportive providing advice and guidance for trustees (and employers and members) to deal with the ever-changing pensions environment. In addition the satisfaction of a well-managed and administered pension scheme protecting and providing for members in their retirement will no doubt bring its own rewards.