For most pension scheme trustees however the norm is outsourced secretarial, administration, fund accounting, investment and payroll services.

Often the glue that holds this all together is provided by the overstretched company secretary, financial controller or HR manager who doubles as the employer’s only in-house pensions resource. The often substantial support provided to trustees by the employer is often ill-defined, unrecognized and at times rather ad-hoc.

Fine when all goes well but when if it doesn’t trustees may well have a significant cause for regret.

Even the discipline of writing down a list of the employer’s responsibilities and the trustees’ expectations is useful.

• Does the employer hold or control important trustee documents such as trust deeds and minutes? 
• Where are key documents held and who has access to them? 
• What about retention policies – 6 years or less may suffice for VAT but in pension scheme terms this is a blink of the eye? Dalriada has inherited more than one trustee appointment where the trustees have been forever parted from crucial historical record by over zealous shredding! 
• Are there crucial trustee records held on employer computer systems? Most enterprises have Business Continuity Plans in place but can trustees be sure that they are actually robust and thoroughly tested. As far as the pension scheme is concerned any loss of records would be on their watch. 
• What about the risk of cyber-crime – trustee records that might be rich in personal data and details of asset holdings could be rich pickings for those with ill intent. How secure is the employer’s network? – if these records belong to the trustees it is their responsibility to make sure.
  

Operational risk management is a key and often neglected part of a trustee’s role. Our experience is that a professional trustee can often help lay-trustees ask the crucial questions that need to be asked of employers who provide support services. The key step is documenting the relationship between the trustees and the employer and describing the terms on which services are supplied.

It is inevitable that in any industry there will be times when things don’t work perfectly and that, as a result, complaints are received. It is often said that how you deal with complaints shapes your business and how you are perceived in your market place.

A review of Ombudsman cases shows that ill health applications by far dominate their workload but an increasing number of complaints relate to incorrect information provided by Trustees when a member comes towards retirement.

Inevitably, the reason for incorrect information being provided comes back to the thorny old issue of data and how it is recorded on databases. The inaccurate recording of benefit data or a misinterpretation of the rules of the scheme can lead to members basing their financial planning on figures which then turn out to be incorrect.

A recent Ombudsman ruling in March ruled partly in favour of the member, and he received the sum of £1000 compensation, in so far as he had been given incorrect information, but the reduced pension was still the figure that he would receive.

This brings us to the nub of most pension issues and the old chestnut “rules is rules” Under Trust Law the member is only entitled to the amount that the rules say may be paid. The fact, as in the case described, that the member had been promised an entirely different amount falls by the wayside. He received compensation for maladministration but could only receive the pension that he was entitled to.

Trustees will always try to make sure that correct and accurate information is given to members but there will always be some mistakes made however hard everyone tries to avoid them.

These can be mitigated by having a much better understanding of how the administrator controls the data. Regular reporting at Trustee meetings of the accuracy of the data held; sample audit being carried out; clear communication to the members of their benefits; consideration given to a sample audit of benefits especially in known “difficult areas” such as transfer ins, two periods of service etc. Ultimately give data the attention it deserves and not just stuck at the end of a long agenda after a long meeting.

Otherwise it could be your scheme that is next to have the unenviable task of explaining to the customer why their benefit is wrong.

The case was brought by Liberty on behalf of John Walker a member of the Innospec Pension Scheme. He had been a member of the scheme since 1980 and had entered into a civil partnership in 2006. He had calculated that should he die his partner would receive a pension of £500pa. However if he had married a woman and he died then she would receive a pension of £41000pa a considerable difference.

The tribunal ruled that Mr Walker was being discriminated against and that despite the scheme complying with all UK legislation they had fallen foul of the EU Equal Treatment directive. The tribunal therefore ruled that civil partners should get benefits based on full service and not just from when the legislation changed in 2005.

The case is now subject to appeal and we will wait with interest as to what happens next. There is no doubt that this has the ability to throw yet another massive spoke into the ever increasing liabilities of a pension scheme should this be ratified. However there is a long way to go before that happens but employers will be anxiously looking over their shoulders waiting for another nail to be hammered into the defined benefits pension coffin.

At first glance, we could be forgiven for thinking that the announced intention to provide everyone with a flat-rate pension of £144 a week (in today’s terms) from 2017 is a “good deal”. Inevitably, as reality gradually dawns, we remember that our country has a national debt of, depending on the measure you use, something in the region of £17bn, and we wonder if our country can really afford to give us a “good deal”.

The bad news is that “good deals” are not really on the agenda. Most people will, in the long run, be worse off as a result of these changes … eventually. The Government’s intention is to link the state pension age with life expectancy. Analysts expect that a rise to age 68 may need to be brought forward to around 2035 to keep pace with life expectancy projections, and that it could easily be age 70 by 2050.

Younger people will again, mostly, be worse off. The UK has a declining tax base. However, few people, especially the over-50s, want their living standards to be diminished, even if it means that things are fairer for others. The concerns of this “baby boomer” generation have become increasingly important to governments. The “baby boomers” appear more than content to allow someone else to pay for their relatively comfortable lifestyle and future care. This group wants hard and difficult political and economic decisions delayed as long as possible; they want the can kicked down the road. The more delay the better; and the longer governments will stick to old, unaffordable promises. Maybe they’re taking their lead from another war-time leader, Winston Churchill, who said: “Although prepared for martyrdom, I prefer that it be postponed”.

We have been expecting the death of contracting out ever since the Government first started talking about a flat rate State Pension, we also knew the over reaction of the impact was equally inevitable. 

What does it actually mean?  DB schemes that are currently contracted out on a reference scheme basis will no longer be subsidised by the state to the tune of 4.8% of the band earnings of active members.  Whilst every little helps, in the current funding climate this is unlikely to make a massive difference to the finances of the few private sector schemes that are still open to accrual.  For public sector schemes (i.e. the vast majority of salary related pension provision) it makes no difference except in the accounting.

What this does mean is that Trustees and Employers will have more freedom to negotiate future scheme design.  The current level of benefit accrual, indexation and contingent benefits will be more expensive but the government will again be responsible for providing some of those benefits.  Regardless of the political and macro economic intention of contracting out, the scheme design reason was to allow smooth amalgamation of Scheme & State benefits to target an aggregate retirement income.  If the state is providing more, the Scheme should provide less.

There may be an educational hurdle here as the National Insurance rebate was seldom shown explicitly; many members will not recognise that this was included in their contribution rate and therefore were you to reduce accrual many will believe that they are getting less for their money.  In fact without benefit adjustment they will be paying more for well, more.

What many employers and lay trustees possibly don’t realise is the added complexity and cost imposed by contracting out.  If they did it is possible that they would never have contracted-out in the first place.  We can but hope that the death of contracting out will open a discussion on the simplification of legacy contracted out liabilities, perhaps even the demise of GMPs.

The case concerned the payment of death benefits to an unmarried partner. The rules said that the unmarried partner must be nominated in writing by the member and certain other conditions had to be met including the fact that they had lived together for at least two years and were financially dependent on each other.

The last two points were met but the member had not nominated the unmarried partner before he died. The trustees refused to pay the survivors pension and the High Court held that the Trustees had discriminated against the partner on the basis of her unmarried status. The court ruled that it was irrational and disproportionate to impose a written nomination requirement.

It remains to be seen if this judgement will be appealed or whether it will have greater impact where death benefits differ depending on marital status. Whilst current feeling is that the judgement is unlikely to have a wider impact it does serve as a reminder as to how complex the pensions world can be and that even when a rule is in place it does not necessarily mean that it can always be relied upon.

It perhaps also highlights the importance of constantly reviewing scheme rules and that Trustees need to consider all the circumstances of each case and take legal advice as appropriate.

2012 has been no different and if anything the pace has somewhat increased.

Highlights included……

January – communicating with pension scheme members has never been more important and an article regarding how public sector employees feel “robbed of their pension” shows how the member perceives their pension as opposed to others views of “the gold plated public sector pension”. Opposite ends of the spectrum but improved communication may improve both points of view.

February – we were very pleased to be the first UK professional trustee firm to complete ISO/EIC 27001, an internationally recognised standard for Information Security Management.

March – Trade unions lost their court action against the government on the decision to switch the basis for calculating future pension increases from RPI to CPI. It’s safe to say that opinions remain divided on the rights and wrongs of this issue, but at least the court decision provided some certainty.

April – a guest blog written by John Heatly highlighted how a trustee works with administrators and the challenges that have to be overcome. A common sense approach is the best way forward but perhaps overreliance or hiding behind the dreaded SLA’s is the approach that trustees have to overcome.

May – Our own Claire McGruer was nominated as Trustee of the year by Engaged Investor Magazine.

July – A UK pensions survey found that only 25% of private sector employees are members of an occupational pension scheme – a worrying statistic. Will auto-enrolment turn the tide? Only time will tell.

In August, the Pensions Administration Standards Association (PASA) jumped back into the forefront of trustees’ minds by announcing that they were pushing ahead with their concept of a “kitemark” for administrators. Much work to be done but a great potential way forward and will help guide trustees in the future to the right administrator.

September saw the PPF issue a new levy framework document that included a guide on how the levy is calculated. Trustees need to be familiar with this issue and be prepared to look at ways on how their levy could be reduced

In November the regulator stepped into the fray of GMP reconciliation by announcing that a £2 tolerance should be used to try and reduce the time this process takes. There was nothing particularly startling in this as most Trustees have a view on tolerances anyway. However, this maybe just helps reinforce the message that GMP reconciliations need to be tackled.

And finally December finds the data deadline is looming for administrators and Trustees should certainly know where they are with their schemes (and hopefully not just assuming all is well)?

There are many question that members can consider when deciding whether to forego pension for cash. It is possible to drill these down to include pension increase levels, tax savings and the like but the main consideration for most is what is the opportunity cost of not taking a lump sum.

The points on which Trustees could deliberate are no less numerous but they basically collapse into the same old two questions:

1. What do the rules say?
2. What is in the interest of the Scheme beneficiaries as a whole?

The rules will advise whether members have a right to swap pension for cash or whether it is an option provided at the discretion of the Trustees. Similarly the Rules will provide who has the power to set or alter the commutation rates.

When agreeing commutation rates, normally in consultation with the Scheme Actuary, the Trustees ultimately have to be comfortable that they are not allowing cash to exit the Scheme at such a rate that it would increase the risk of other members not getting their benefits. It is prudent for the Trustees to consider their discretions on commutation, early/late retirement and transfer values as part of each valuation. The general aim should be for any such event to have a neutral impact on the Scheme.

Regardless of the conversion rate in place, the Trustees primary obligation must be to ensure that members have the correct level and type of information to make their decision. Statistics like this don’t help.