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Member Nominated Trustees Professor Stephen Hawking was once told that sales of “A brief history of time” would halve for each formula he put into the text. Well the same used to be true of writing about retirement planning; mention pensions and you turn off half the readership. But this is no longer true. Pensions are too important to all of us and keeping up to date with what the government is doing is part of business life. 
Within three years, almost all occupational schemes will have to have a third of their trustees nominated by the members, both those currently working for the company and current pensioners. If there are a high proportion of deferred members (that is former members of the scheme who still have preserved pension benefits) they also need to be included in the election process.
Existing schemes have up to 31 October 2007 to comply, but new occupational schemes will have to include member nominated trustees immediately. This includes executive and group pension schemes but not group personal pensions set up by insurance companies under their own rules.
The function of a scheme trustee is to direct the investment strategy (but not necessarily the individual investment decisions, which can be delegated to an
investment manager) and to monitor how the scheme operates, within the trust document (and the law). The responsibilities are quite onerous and there will be a need for both initial and ongoing training, to ensure that all trustees (member nominated and others) are fully up-to-speed with current and future legislation. This is not a responsibility that anyone can take on lightly and professional advice and support will be required on an on-going basis.The new rules, which came into force on 6th April 2006 (at the same time as pension simplification) require that this new class of trustees will have to be nominated by the members (or any organisation that represents them) and then selected by some or all of the members. The real problem is that there are few (if any) incentives for members to agree to become trustees. This means that it could be difficult to find anyone prepared to undertake the responsibilities involved. The rules say that if not enough people can be found to fulfil the “one third” requirement (and this could even rise to half of all trustees being member nominated by 2009) the nomination and selection process repeated until the quota is satisfied. The principle of member nominated trustees is first class; it is a good idea that those who are most affected by any decision relating to the pension scheme should be involved in it through their own representatives. However, if the role is seen as being too onerous, not only will it be difficult to find people to undertake it, but members will similarly have little or no sanction over their activities, since saying “do what we say or we will de-select you” is hardly likely to intimidate someone who was press-ganged in the first place. The law will be adequate to protect the interests of members – trustees will have a legal responsibility to act in their best interests. But if they are reluctant to serve in the first place, how effective will they be in resisting the influence of a future “Maxwell”? This is not the only issue to affect occupational pension schemes, post April. Executive pension schemes (EPPs) also now have to be registered with HM Revenue and Customs. 
This, as well as on-going reporting, has to be done by the “administrator”. Unfortunately, insurance company EPPs do not tend to have an administrator, as such, since the only administration involved has historically been running the insurance policy; so that is all they charge for. The new responsibilities of an administrator include being liable for substantial penalties under various circumstances and the service cannot easily, therefore be accommodated. One option is to convert the EPP to a small self administered scheme (SSAS) if additional investment flexibility is required. However, if no additional investments are envisaged, a deferred SSAS could well be an option. There will be fees involved, but these are likely to be less than for a full SSAS and the administration responsibility is accounted for.
If you require any further information about the services that we provide or would like to review your financial planning position, please contact us |