Playpen talk on trustee duties 25 Feb 2025.pptx

Rosalind Connor

1. Am I bothered? Trustees’ legal duties around employer covenant and employer requests Rosalind Connor Partner, Pensions These slides are for general information purposes only. They are not intended and should not be used as a substitute for specific legal advice. Specific legal advice should be taken before acting on any of the topics covered.

2. The employer may have a view on trustee decisions Please close the scheme to cut my costs Please run the scheme on to avoid a curtailment charge on my accounts Please surrender your contingent asset so I can refinance Please don’t augment benefits because I want all the surplus Please do a bulk transfer into another scheme to help my business restructuring

3. Should trustees be bothered by that? Should the trustees do what the employer asks them to? I am not going to answer this question! What are the trustees’ legal obligations when considering what the employer wants: What is the legal framework for trustee decisions? Does the law require the trustees to consider the effect on employer covenant? If so, how much? Are trustees legally required to consider the employer’s wishes outside covenant?

4. The legal framework for trustee decisions Trust law principles: from case law Interpretation of trust law principles for pension schemes: from case law Statutory obligations: from statute and regulations Statutory interpretation: from case law

5. Trust law duties Trustees have an overriding duty to carry out the terms of the trust Not really “acting in the interests of members/scheme” But a good shorthand as long as you aren’t too literal Trustees may only use their powers as trustees: Within the limits of that power (“excessive execution”) For the purpose for which the power was given (“fraud on the power”) Trustees can’t use a bulk transfer power simply to transfer to a new scheme so the employer can access the surplus Trustees can’t use an amendment power to change the benefit structure to something they would like the employer to have offered its staff

6. What about employer covenant? Statute now (eventually!) requires trustees to consider covenant in funding But do trustees’ duties require them to consider covenant in their decisions more generally? If the trustees are trying to carry out the terms of the scheme, they need to know if the employer can fund the scheme The purpose of the scheme isn’t to bankrupt the employer “Having regard to the employer” = Remember they fund the scheme = Pay attention to covenant

7. Is covenant more important than anything else? If you don’t say yes, I will be less able to fund you in the future What are the other effects of the decision on my scheme? How well funded is my scheme? How certain is your prediction of doom? Which covenant scenarios most concern me?

8. What about the employer’s other needs? It is good for the rest of my business That’s not the purpose of my scheme But the scheme was set up to promote my business Sort of, it was set up to incentivise employees, so that isn’t a blanket sign off But the business is a beneficiary Yes, sometimes, but not all the time and not with everything you want to do I find the “employer as beneficiary” argument unhelpful

9. Where does that leave us? The trustee should be bothered about the employer covenant It is needed to carry out the terms of the trust But not above everything else Legally, the trustees don’t often need to be bothered about the employer’s views otherwise Does this make run on harder or disincentivise employer investment in pension schemes?

10. Contact information   Rosalind Connor [email protected] M: [phone] T: [phone] Partner, Pensions   templebright.com   These slides are for general information purposes only. They are not intended and should not be used as a substitute for specific legal advice. Specific legal advice should be taken before acting on any of the topics covered.