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PMI Module 202: Section 1 Ch 2
The Role of Scheme Trustees
37
Other
Professional
03/14/2008

Additional Other Flashcards

 


 

Cards

Term
List the different types of trustee. (8)
Definition
  1. Individual trustee
  2. Corporate Trustee
  3. Trust Corporation
  4. Employer as Trustee
  5. Custodian Trustee and Committee of Management
  6. Pensioneer Trustee
  7. Independent Trustee
  8. Member Nominated Trustee/Director
Term

With respect to Individual Trustees, any person over the age of 18 can be appointed as a trustee of a pension scheme, except where that person:  (6)

Definition
  • Convicted of an offence involving dishonesty or deception
  • Undischarged bankrupt
  • Has made an arrangement with his creditors and the arrangement is still in force
  • Disqualified from acting as a company director
  • Suspended or disqualified from acting as a trustee by a court order or the Regulator
  • Incapable of acting as a trustee due to a mental disorder.
Term
What is a corporate trustee?
Definition
A company which is formed to act as a trustee, with all the necessary powers in its Memorandum and Articles of Association.
Term
How should the directors of a corporate trustee act?
Definition

In a trustee-like manner in their management of the pension scheme as if they were individual trustees.

 

However, the directors' fiduciary duty is owed to the company rather than directly to the scheme members.

Term
When would a company be disqualified from acting as a trustee?
Definition

Where one of its directors would be disqualified from acting as an individual trustee by one of the following reasons:

  1. Conviction involving dishonesty or deception
  2. Undischarged bankrupt
  3. Has an arrangement with creditors
  4. Disqualified from acting as company director
Term
What is a trust corporation?
Definition

It is a corporate trustee which is:

  • formed under the laws of the UK and has a place of business in the UK
  • empowered by its constitution to act as a trustee
  • either incorporated by a special Act of Parliament or is a registered company with an issued share capital of at least £250,000 of which £100,000 is paid up.
Term
What is the main advantage of a trust corporation over a corporate trustee?
Definition
A trust corporation can give a valid receipt for the proceeds of a sale of land, otherwise at least 2 trustees are required.
Term

What is an employer as trustee?

 

Why is this becoming more uncommon? (2)

Definition

Where the employer acts as the sole trustee.

 

  • Statutory requirements relating to MNT's make it inappropriate for the directors to act as trustees.
  • Conflicts of interest
Term
What is a custodian truste?
Definition
Where the trust deed requires separation of the trustees dual function, the 'custodian trustee' is appointed to simply hold the scheme assets.
Term
What is a 'committee of management' used for?
Definition
Where the trust deed requires the separation of the trustees dual responsibilities, a 'committee of management' will be responsible for the administration of the scheme.
Term

What is a 'Pensioneer Trustee'?

 

What is the main purpose of a pensioneer trustee?

Definition

HMRC required SSAS's to have a professional trustee appointed from a list of approved 'pensioneer trustees'.

 

  • To prevent an improper winding up of the scheme in order to distribute assets to the members

 

 

Term
Notes on Independent trustee
Definition

 

  • Independent T:
    • has no interest in the assets of the employer or the scheme
    • is neither connected with nor an associate of: any employer; any person acting as insolvency practitioner; the official receiver to the employer.
  •  Reg can appoint under Section 23 of the Pensions Act 1995
  • Can be appointed in the following circumstances:
  •  
    • An insolvency practitioner is appointed to an employer
    • the official receive becomes the liquidator of the company
    • the official receiver becomes the interim receiver of the property of a person who is a participating employer
    • the official receiver becomes the receiver and the manager, or trustee, of the estate of a bankrupt who is a participating employer in relation to a scheme.
  • Scheme may choose to appoint because:
    • Independent voice in all trustee decisions
    • Add additional expertise
    • Managing conflicts of interest.
Term
MNT, process and guidance
Definition
  • Someone who is:
    • nominated in a process in which at least all the active and pensioner members or organisations which adequately represent them could participate; and
    • selected as a result of a process which involves some or all of the scheme members.
  • Regulator Code of Practice:
    • Provides guidance on what trustees must do to comply with the new MNT requirements, and the timescales in which action needs to be taken.
    • Proportionality
      • Trustees should select an approach, the costs and nature of which are appropriate to the circumstances of their scheme.
    • Fairness
      • Trustees should ensure the arrangements are fair and transparent.  

    • Transparency
      • The outcomes of the nomination, selection process and the method of selection should be communicated to all the members involved.
  • Timescales for implementation:
    • No opt-out:  6th April 06
    • Opt-out:  earliest of
      • date opt-out expires; or
      • 31st Oct 2007
Term
Under what circumstances can Section 36 of the Trustee Act 1925 be used to appoint new trustees? (5)
Definition

In order to replace a trustee who:

  • has died
  • remains outside the UK for more than 12 months
  • wishes to resign
  • refuses to act
  • is unfit or incapable of acting
Term
Appointment of Trustees by the Regulator
Definition
  • Purpose of power is to protect the interests of scheme members and safeguard scheme assets and the PPF
  • Has general power to appoint where he believes it necessary to ensure that:
    • the trustees have the expertise needed to administer the pension scheme properly
    • the scheme's assets are used and applied appropriately
    • the number of trustees is sufficient for the proper administration of the scheme.
Term
Who can remove trustees and in what circumstances? (6)
Definition
  • Trust deed sets out circumstances and method
  • Principal employer
  • MNT's - principal employer with consent of all trustees
  • Pension Regulator - can prohibit a person from being a trustee where he deems them not to be a fit and proper person.
  • Court - where the proper execution of the trust is being threatened.
  • Section 36 of the Trustee Act 1925
Term

Under what Section of which Act can a trustee be disqualified?

 

Under what circumstances will a person be automatically disqualifed?  (4)

Definition

Section 29 of the Pensions Act 1995

 

  • Convicted of an offence involving dishonesty or deception
  • Undischarged bankrupt
  • Has made an arrangement with creditors
  • Disqualified from acting as a company director.
Term
The Regulator has the power to suspend a trustee:  (5)
Definition
  • pending consideration being given to the making of a prohibition order
  • where the trustee is a company, if a petition for the winding up of the company has been presented to the court
  • where a bankruptcy petition has been presented to the court
  • where proceedings have been instituted for an offence involving dishonesty or deception
  • where an application has been made to the court for a disqualification order against him acting as a company director.
Term
What are the duties of a trustee as required by law and by statute?  (9)
Definition
  1. Duty on Acceptance of Trusteeship
  2. Duty to act in accordance with the trust deed
  3. Duty to act impartially
  4. Duty to exercise reasonable skill and care
  5. Duty to act without charge
  6. Duty not to delegate
  7. Duty to act jointly
  8. Duty not to profit from trust property
  9. Duty to prepare and disclose accounts
Term
In relation to 'Duty on Acceptance of Trusteeship', what should a person do to comply with this duty?  (6)
Definition
  • familiarise himself with the trust property, terms of trust and documentation
  • ensure that the trust property is vested in him and his co-trustees
  • consider the suitability of the investments
  • ensure that accounts are maintained
  • ensure duties are not delegated to others unless permitted in trust deed or by statute
  • enusre trustees do not profit from trust unless deed or statute allows or beneficiaries consent
Term

Which duty was considered in

Edge v. Pensions Ombudsman (1999)

What did the case concern and what was the outcome?

Definition
  • Duty to act impartially.
  • Concerned a decision by trustees to use surplus in scheme to reduce employee and employer contributions and grant additonal benefits to members who were in service on 1 April 1994.
  • Pensioner member complained as his contributions had helped to create surplus but he received no additonal benefit.  Rejected by Court of Appeal.
  • Trustees cannot confer an advantage on one beneficiary at the expense of the other, but trustees do not have to treat all beneficiaries in the same way.
Term

Duty to Exercise Reasonable Skill and Care

 

What level of skill and care is expected of trustees?

Definition

Skill and care that the ordinary man would use in the management of the affairs of a third party for whom they felt morally bound to provide.

 

Professional trustees:  A higher standard is expected.

Term

Duty to Act Jointly

 

Under what circumstances do Trustees not need to act jointly? (3)

Definition
  • Where trust deed or court directs otherwise
  • to receive income
  • where there has been a valid delegation
Term
What additional statutory duties do trustees have?  (12)
Definition
  1. Duty of care
  2. Payment of tax
  3. Disclosure
  4. Notification of certain scheme-related events to the Regulator
  5. Duty to maintain a statement of investment principles
  6. Duty to prepare a payment schedule/schedule of contributions
  7. Duty to put in place a recovery plan
  8. Duty to ensure one third MNT's
  9. Duty to put in place and operate a IDRP
  10. Duty to operate a separate bank account
  11. Duty to pay cash equivalent transfer values
  12. Duty to have sufficient knowledge and understanding.
Term

Duty of Care

 

Which act imposed the statutory duty of care?

 

The statutory duty of care applies when a trustee exercises powers in respect of?  (6)

Definition

Trustee Act 2000

  1.  Investment
  2. Acquisition of land
  3. Entering into arrangements under which a person is authorised to act as agent, nominee or custodian
  4. Compounding of liabilities
  5. Insuring trust property
  6. Valuing or auditing a reversionary interest in any of the trust property.
Term

Since when have trustees been required to comply with TKU?

 

Trustees must have appropriate knowledge and understanding of: (3)

Definition
  • Since 6 April 2006
  • T's must have appropriate knowledge and understanding of:
    • The law relating to pensions and trusts
    • Principles relating to the funding of occupational pension schemes and the investment of scheme assets
  • Conversant with scheme's documentation
    • TDR
    • SIP
    • SFP
    • any other docs
  • Reg Code of Practice
    • Understand fully any advice given
    • challenge advice if sensible to do so
    • enter fully into all decision making processes
  • New T's - 6 month grace period
  • Regular training and keep log
    • Online programme - trustee toolkit
Term

General Powers of Trustees

Most important powers (12)

Balance of powers

Definition
  1. Amend the trust deed and rules
  2. Appoint and remove trustees
  3. Invest the scheme assets
  4. Set employer and employee contribution rates
  5. Augment members' benefits
  6. Act by majority
  7. Insure benefits
  8. Buy annuities
  9. Deduct tax from payments
  10. Make and accept transfer payments
  11. Admit new employers to participate in the scheme
  12. Wind up the scheme
  • The allocation of powers between the principal employer and the trustees.
  • Determined not only by scheme documentation but also statutory provisions.  E.g. Pensions Act 2004 requires trustees and employers to agree upon the rate of employer contributions even where the trust deed provides otherwise.
Term

What is a scheme's 'Balance of Powers'?

 

What determines a scheme's 'Balance of Power'?

Definition

The allocation of powers between the principal employer and the trustees.

 

Determined not only by scheme documentation but also statutory provisions.  E.g. Pensions Act 2004 requires trustees and employers to agree upon the rate of employer contributions even where the trust deed provides otherwise.

Term
Investment Powers
Definition
  • Powers:
    • Trust deed contains wide investment powers which permit T's to invest scheme assets
    • In absence of express power, PA95 gives trustees general power of investment
  • Duty:
    • Ordinary prudent man would ...
    • Not only to invest but to actively seek the best possible financial return compatible with:
      • degree of risk the prudent man would regard appropriate to the trust
      • best financial interests of all beneficiaries having regard to the main purpose of the trust, regardless of personal views ...
  • OPS(Inv) Regs 05 - T's must exercise their discretion in accordance with the following principles (if 100 or more members):
  1. Assets must be invested in the best interests of members
  2. Power of investment must be exercised in a manner calculated to ensure the security, quality, liquidity and profitability of the portfolio.
  3. Assets must be invested in a manner appropriate to the nature and duration of the expected future retirement benefits payable.
  4. Assets must consist predominantly of investments admitted to training on regulated markets (all others kept to a prudent level)
  5. Assets must be properly diversified
  6. Investments in derivative instruments may only be made if they reduce risk or facilitate efficient portfolio management.
Term
Statement of Investment Principles
Definition
  • With 100 or more members must prepare and maintain SIP
  • Must be in writing and cover trustees' policies in respect of:
    • The kinds of investments
    • proportions 
    • Risk
    • Expected returns 
    • The realisation of Investments
    • The extent to which social, environmental or ethical considerations are to be taken into account
    • The exercise of the rights attached to investments
Term

Who can trustees delegate day-to-day investment decisions to? (2)

 

What can trustees not delegate?

 

 

Definition
  • Fund manager authorised by FSA
  • Sub-committee which consists of 2 or more trustees

The strategic investment functions, i.e. Preparing and revising the Statement of Investment Principles

Term

Trustees who delegate investment matters to a fund manager are not responsible for the acts or defaults of the manager so long as they satisfy themselves that:  (2)

 

In relation to an investment sub-committee, who has liability?

Definition
  • The fund manager has the appropriate level of knowledge and experience
  • The manager is carrying out his work competently and complying with the requirements of Section 36 of the Pensions Act 1995 and The Occupational Pension Schemes (Investment) Regulations 2005.

Trustees remain liable for the acts and defaults of the sub-committee.

Term

Give examples of the circumstances in which trustees may be required to exercise their discretion?

 

What happens if a beneficiary challenges a discretionary decision reached by trustees?

Definition
  • What investments to make
  • Whether a member is eligible for ill health early retirement

Courts and Pensions Ombudsman can't subsitute their own decision for that of the trustees.  If they think trustees have not exercised their discretion properly, they should refer the decision back to the trustees for them to reconsider.

Term
When exercising discretion, trustees must:  (5)
Definition
  • Ask themselves the correct questions
  • Not act capriciously - decisions should not be perverse or irrational
  • Consider all relevant factors
  • Not consider any irrelevant factors
  • Exercise the deiscretion themselves (unless valid delegation in place).
Term
What matters are typically covered in the trust deed concerning the conduct of trustee meetings?  (4)
Definition
  • How, to whom and by when notice of the meeting should be given
  • The number of trustees required to constitute a quorum
  • How decisions are made (majority)
  • How the chairman should be appointed and whether he has a casting vote.
Term
Trustees of eligible schemes are required to notify to the Regulator whenever the following events occur: (5)
Definition
  1. Actuary and/or auditor changed 2 or more occassions within a 12 month period.
  2. Making a transfer payment, or accepting a transfer, the value of which is more than the lower of:  5% of assets and £1.5m
  3. A decison to grant benefits, or a right to benefits, to a member, the cost of which is more than the lower of:  5% of assets and £1.5m
  4. Any decison to take action which will result in any debt not being paid in full
  5. A decision to grant benefits, or a right to benefits, on more favourable terms than those provided by the scheme rules without seeking the advice of the actuary or securing additonal funding where such funding was advised.
Term
In what 4 ways can trustees protect themselves from liability?
Definition
  • Exoneration
    • Seeks to exlude the trustees from liability
    • Contained in trust deed
    • Does not exclude liability where there has been fraud or dishonesty
  • Indemnity
    • An indemnity from a company is only as good as that company's ability to pay
    • A court may refuse to uphold an indemnity in relation to a deliberate breach of trust
    • Trustee cannot be indemnified for fines imposed for an offence
  • Section 61 of the Trustee Act 1925
    • Court has discretion to relieve trustee of liability for a breach of trust where it believes the trustee acted honestly and reasonably and ought to be excused.
  • Insurance
    • Protecting the Trustees Against Personal Liability
    • Protecting the Scheme Assets
    • Policy Limitations - right of subrogation
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