Occupational Pension Schemes: Trustees’ Responsibilities

Occupational pension schemes require the establishment of a trust to gain tax advantages and ensure that the scheme’s assets are separate from those of the employer. This factsheet outlines the main responsibilities of occupational pension scheme trustees. If your business is in the Nottingham area, we at AHACCOUNTANTS can provide you with advice on the accounting and audit requirements of your scheme.

Many employers offer their staff the opportunity to save for retirement through an occupational pension scheme. Employees who join the scheme need to have confidence that it is being managed effectively.

The role of pension scheme trustees is vital in ensuring that the scheme is run honestly, efficiently, and in the best interests of the members. Below are the primary responsibilities of occupational pension scheme trustees.

Background

The Pensions Act 1995 brought significant changes to the management of occupational pension schemes, with further amendments made by the Pensions Act 2004. This led to the establishment of The Pensions Regulator (TPR) as the UK regulator for work-based pension schemes.

TPR has several key objectives:

• Protecting the benefits of members of work-based pension schemes.
• Promoting and improving understanding of the good administration of these schemes.
• Reducing the risk of situations that may lead to compensation claims from the Pension Protection Fund.
• Maximizing employer compliance with duties introduced by the Pensions Act 2008.
• Minimizing any adverse impacts on sustainable growth for employers related to regulatory functions.

TPR has three core powers:

1. Investigating schemes to gather information that helps identify and monitor risks.
2. Correcting identified problems.
3. Acting against avoidance to ensure employers fulfill their pension obligations.

TPR provides crucial guidance for those involved with pension schemes, including trustees, auditors, and actuaries, available on its website.

Pension Scheme Classification

Employers can enhance retirement benefits for employees through various schemes, including:

• Occupational schemes
• Group personal pension schemes
• Stakeholder schemes

Group personal pension schemes and stakeholder schemes are individual plans in members’ names, where the employer acts merely as an administrator and lacks accounting or audit requirements. In contrast, an occupational pension provides benefits to employees upon retirement or leaving the company and usually involves trustees.

The Role of Trustees

Most company pension schemes in the UK are set up as trusts for two main reasons:

1. To secure tax advantages.
2. To ensure the scheme’s assets remain separate from the employer’s assets.

A trustee is a person or company that holds assets for the beneficiaries of the pension scheme, responsible for ensuring proper management and security of members’ benefits.

Trustees must be aware of their legal duties and responsibilities. They are required to have knowledge of pension and trust laws, scheme funding, and investment of scheme assets. They must also familiarize themselves with:

• Pension scheme documents, including the trust deed and rules.
• Statements of investment principles and funding principles.

A TPR code of practice outlines compliance requirements, and new trustees must complete training within six months of appointment.

Trustees’ Duties and Responsibilities

Trustees have critical duties, including:

• Acting impartially, prudently, and in the best interests of beneficiaries.
• Complying with the trust deed, scheme rules, and legal frameworks.

Key tasks include ensuring:

• The employer pays contributions accurately and on time.
• The correct benefits are paid punctually.
• An annual report is prepared, including an auditor’s statement.
• The pension fund is invested in line with the scheme’s principles.
• Professional advisers are appointed as needed.
• Accurate accounting records are maintained.
• Members receive necessary information about the scheme and their benefits.
• TPR receives required information for registration, annual return, and levy payment.

Reporting to TPR

Trustees have a legal duty to report significant breaches of law to TPR and notify them of particular scheme-related events known as “notifiable events.”

The Annual Report

Trustees must make an annual report available within seven months of the scheme year-end, which includes:

• A trustees’ report with investment, legal, and administrative information.
• Actuarial information (if applicable).
• Governance information (if applicable).
• Audited accounts and audit reports.

Following recent regulations, trustees of some schemes are now required to produce a Task Force on Climate-related Financial Disclosures (TCFD) report, with plans for broader expansion.

Trustees’ Liability

Trustees may be personally liable for any losses resulting from breaches of trust, such as:

• Unauthorized acts under the trust deed and scheme rules.
• Failure to perform duties under trust law or pension legislation.

Trustees may be protected from personal liability for losses caused by a breach, except in cases of actual fraud. Some employers may also provide indemnity insurance for trustees.