Feature – Voting in pension trustees

If you read nothing else, read this …

• The new Pensions Act 2004 will require at least one-third of every trustee board to be member-nominated, and this will move to 50% within the next few years. • The Act also requires trustees to understand their own scheme, and the framework around pensions generally, although this obligation already exists under trust law. • Some commentators feel that these new responsibilities will make it difficult to find

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The 1995 Pensions Act requires at least one-third of the trustees of a pension scheme to be member-nominated, provided no alternative has been accepted by the members using its opt-out provisions. Under the Pensions Act 2004, however, the widely-used opt-out provision disappears. The Act says that member-nominated trustees must be put forward using a process which all the active and pensioner members of the scheme or "organisations which adequately represent them" are eligible to participate in, before being selected by some or all of the scheme’s members. The minimum proportion of member-nominated trustees will remain at one-third for the moment, but the government wants employers to move to 50% voluntarily. In case they don’t, however, the Pensions Act contains some powers to compel them. Schemes are likely to have until 2009 to comply. The Act also includes new rules requiring trustees to have knowledge and understanding of pensions and trust law, and the basic principles of funding and investment.

They also need to be ‘conversant’ – or in plain English, to know their way around – their own trust documents. The Occupational Pensions Regulatory Authority (Opra) has been consulting on a 15-page code of guidance on the details. Trustees who do not comply could be fined or disqualified. Nicola Bumpus, pensions lawyer at solicitors Pinsent Masons, says: "Reading the Opra material, it certainly does look daunting. I don’t think anything has particularly changed, compared with what’s already there in trust law, but codifying things in black and white makes it all look more onerous. But it really depends how the code of practice defines the term ‘conversant’. People could be put off, especially in smaller schemes, where there may be problems in recruiting people and getting them trained."

More generally, the duties of trustees under the new Act look pretty scary, especially if the scheme is in deficit or the company’s finances look shaky. So could there be difficulties in finding anyone to take on the job in future? David Yeandle, deputy director of the Engineering Employers’ Federation, says that he does not necessarily disagree with the new responsibilities, "but the practical implications are that companies may find it more difficult to find trustees in future. That’s not only with employees, but also senior managers may be less enthusiastic about taking up the role, which has not been a problem to date." Trade unions, however, disagree. Bryan Freake, pensions officer at Amicus, explains that he does not see things in the same way. "I think the general approach being taken in the legislation is one that members will understand and welcome. But that is provided it is made clear that trustees, while needing to be familiar with the issues, will still be supported by professional advice."