Uncover The Facts

Are you considered to be a “professional trustee”? Well the answer to that question has just become a whole lot more important! The Pensions Regulator has recently published its “Professional trustee description policy”, which aims to provide clarity over who the Regulator would and would not consider to be a professional trustee. The Regulator’s definition can have significant consequences, as it expects higher standards of professional trustees and as a result higher monetary penalties will normally be applied where a professional trustee has failed in its duties. Professional trustees will need to have additional protection in place to reflect this increased risk, for example by way of insurance and indemnities.

Many trustees may therefore wonder “how do I know whether I am a “professional trustee” or not?”. The Regulator’s general description is fairly straightforward: “We consider a professional pension plan trustee to include any person, whether or not incorporated, who acts as a trustee of the plan, in the course of the business of being a trustee”.

However, after this the position becomes a little more complicated and the boundaries between a professional and a non-professional trustee become slightly blurred by the Regulator’s interpretation of “in the course of business of being a trustee”.

Firstly, the Regulator comments that if a trustee of a pension plan:

  1. is, or has been, a member or employee of that plan (or a related plan) or one of that plan’s participating employers; and
  2. does not act, or offer to act, as a trustee on any unrelated plan,

the Regulator will not normally consider that trustee to be “acting in the course of the business of being a trustee”, even if that trustee is being paid.

On the other hand, if individuals represent or promote themselves as having expertise in general trustee matters (rather than in just one specialty, such as investment) to the trustees or sponsor of a pension plan with which they have no connection, the Regulator would normally consider them to be “acting in the course of business of being a trustee”, even if those trustee are not being paid. So, be careful with those LinkedIn profiles!

By way of example, Trustee 1 is a member of the XYZ Pension Plan, acts as a trustee of only that plan and is paid for his trustee work. Trustee 2 is a retired consultant, who uses his general pensions experience as an unpaid trustee of the XYZ Pension Plan, and has no other connection to that plan. According to the Regulator’s policy, Trustee 2 would normally be considered to be a “professional trustee”, and therefore held to the Regulator’s higher standards and subject to higher financial penalties for breach, whereas Trustee 1 would not.

Some plans pay their trustees a modest retainer; others pay their trustees handsomely; but most plans don’t currently pay their trustees at all. Whatever type of plan you’re involved with, both the trustee and the person appointing that trustee should understand whether the trustee meets the Regulator’s definition of “professional trustee”. In future, trustees will need to state in their annual Scheme Return which among their number are “professional trustees”. If you are unclear on whether you or any of your trustees may fall within the Regulator’s definition and would like advice on the implications of the policy, please speak to your usual Squire Patton Boggs contact.