If a company is unwilling or unable to continue making contributions to a scheme because it cannot afford the contributions or because a merger has taken place and budgeting changes, the regular trustees will most likely be the ones to deal with the long process of winding up. However, if a company has become insolvent, more often than not independent trustees will be appointed, alongside the regular trustees. This is because under insolvency law, the insolvency practitioner in charge of dealing with a company’s administration must inform the Pensions Regulator where there is a scheme to be wound up.

The Pensions Regulator appoints independent trustees (usually companies, rather than individuals) to take care of all discretionary matters, alongside the original trustees of the scheme who will no longer make discretionary or judgement calls, but only assist with the smooth administration of the pension scheme as it is wound up. The trustees will be independent if they have no ties with the company, and no vested interest as to who the final pay outs of the trust are made to.

Trustees wind up a pension scheme by investigating how the investments and assets of the scheme have been managed, in order to determine what will become available to the beneficiaries of the trust (such as the employees of a pension scheme). Having assessed the situation, the trustees will move to ‘realise the value’ of trust property by selling off remaining property, and maintaining the profits throughout the winding up process by investing them. Investments made during this time will low risk, in order that no further losses are incurred.

The most recognisable part of all this will be the final pay outs of the pension scheme to members, in line with whatever rules were established to govern what beneficiaries receive when the trust was set up. It is the trustees’ duty to follow these rules as closely as they can, however difficult the circumstances and whatever the value of the assets remaining. In practice this will often mean that a priority order is followed, whereby members are paid in turn based on what kind of voluntary contributions they made or how they participated in the scheme.

It is worth noting however that further payments may be available notwithstanding the specific trust constitution, which the trustees can take into account under statute. These payments are made by the Pension Protection Fund to compensate and protect employees who contributed to pension schemes which eventually fail. This is particularly important in cases where a scheme was underfunded up until insolvency. Contributions to ill health pensions and survivors’ pensions for example are protected up to certain limited percentages of the policy’s value.

Importantly, a lay trustee is a trustee in their own time and not in a full-time capacity. This in itself can raise its own problems. In addition to the commitment required, which is not always possible with a full-time job, there is the problem of conflicts of interest within a committee, the issue of vested interest (with certain members also being beneficiaries of the scheme) and the changing requirements of pension schemes.

As a result, many companies are now supplementing their lay committee by calling on independent trustees. Working as an independent agent, these trustees are able to mitigate any potential conflict and dedicate the equivalent of full-time effort to the scheme.

Pensions are changing. In the face of the current crisis, there is an increased emphasis on governance. As independent trustees work for a range of schemes, their expertise is market-led and therefore can be easily suited to each individual scheme. With the UK pensions crisis rumbling and the possibility of extra benefit bills running into hundreds of billions of pounds, such independent and impartial advice could be extremely beneficial for schemes looking to keep their heads above water.

What do I need to know?

By statute, all trustees fulfilling particular legislative conditions must be listed under the Independent Trustee Register – if you or your pension scheme has chosen to seek professional counsel from an independent trustee it is essential that you check they are on this list. This way you ensure that the trustee elected does the job according to the standards they are required, by legislation, to meet.

They should:

• Be fully up to date with all pensions issues, as well as any changes in legislation which affect pension schemes
• Work primarily with the interest of scheme members in mind
• Demonstrate an appropriate level of expert knowledge and understanding
• Be alert to cost and risk control
• Be able to identify the appropriate sources of professional advice in terms of compliance with legislation and scheme administration

Independent trustees can act alongside an existing committee of lay trustees, or take over the role of sole trustee. It is important to consider the advantages and disadvantages of each route for the particular scheme.
What are the benefits?

The benefits will depend to some extent on the role the trustee will take: it will be the company’s decision whether they are being employed into an executive or supporting role. Either way, however, there are some benefits that remain universal. These are:

• Impartiality: where conflicts of interest arise, it is the trustee’s job to mitigate and to ensure that all decisions are made on the basis of the members’ benefits.
• Transparency: due to the impartiality of the trustee, issues such as scheme investment or agreeing on the employer’s and members’ contribution rates are made with the advancement of the scheme in mind.
• Confidence: with a professional independent agent acting according to regulations set out by the Pensions Regulator, members can rest assured that their schemes are being governed fairly, professionally and according to best practice in governance.

Independent Trustees – A Changing Role

It was quite usual not so long ago to recruit independent trustees on the ‘nod-and-a-wink’ recommendation of a friendly pension fund professional. But not now. Several major scandals during the latter-half of the 20th century helped change the pensions landscape forever and shaped the role of the trustee that we see today.

As a consequence of these scandals – the Robert Maxwell scandal of 1991 is probably the most famous example in the UK – and companies, facing a pensions ‘black hole’ because of poorer-than-expected investment returns, being unable to pay employees what they once promised, all funds now paid into a medium or large company’s pension scheme must be held in trust.

This legal requirement not only prevents business owners helping themselves to pension scheme money whenever they want, but it also stops the pension fund counting as a business asset which might then be at risk if the company fails.

Small companies can also employ trusts to look after their pension schemes. But they don’t have to if they don’t wish it. Instead, they can choose to run a GPP, a group money-purchase personal pension scheme, which requires a pensions adviser and an administrator only and not the appointment of independent trustees.

The role of the trust is simple, to administer and protect the company pension fund and thus enable it to grow in value. It is independent of the company and the pinnacle of a triangle, with employer and employees forming the other two points.

All sides of the triangle need to work together to successfully achieve the pension fund’s primary goal, which is to ensure money moves from employee to employer pension scheme and then eventually back again to the beneficiary, the retired employee.

The job of the trustee is a demanding one at the best of times and now requires a degree of knowledge and understanding unknown in the past. The trustee can be either a lay person, a paid professional, or even a company – known as a corporate trustee. The corporate trustee will usually be the director, with the same responsibilities as an individual trustee. The pension scheme’s employer can also be the corporate trustee.

Often an individual trustee will be just one of a number of trustees looking after the pension scheme. If that is the case, the group is known as the board of trustees. Anyone is eligible to become a trustee provided they fulfil a few basic requirements.

Trustees must be aged 18 or over and be legally capable of holding property. They cannot have a conviction for an offence involving dishonesty or deception (unless it is spent) or be an undischarged bankrupt or have voluntary agreements with creditors.

Independent trustees must not be disqualified from acting as a company director, or have property in Scotland covered by a sequestration order. They cannot be a trustee if they are a company which already has one of its directors disqualified from being a trustee. The same applies with a Scottish partnership where any of the partners have been disqualified from being a trustee.

The changes will not come into effect until December 2012 allowing the industries in question time to adjust, but doubtless there will be some increases in both in the interim.

The British Insurance Brokers’ Association (BIBA) said currently the cost of the average car claim by an 18-year old man was £4,400, while that for an 18-year old woman was £2,700.

“The ruling will have a significant effect on the insurance industry which has used the system of risk based pricing to award discounts to lower risk drivers like young females who are statistically safer drivers.

The industry will have to change its model and effectively females will now pay a cross subsidy for males on their insurance premiums,” said a BIBA spokesperson.

Young female drivers are likely to be among the worst hit by the ridiculous ruling and the AA warns that premiums for females under 30 could rise by up to £400 per year.

Maggie Craig, acting director general of the Association of British Insurers (ABI), said: “This gender ban is disappointing news for UK consumers and something the UK insurance industry has fought against for the last decade.

“The judgment ignores the fact that taking a person’s gender into account, where relevant to the risk, enables men and women alike to get a more accurate price for their insurance.”

Pensions

The ruling will have an effect on the cost of pensions when it comes to buying an annuity, as women statistically live longer than men and so receive a smaller annual pension for a longer period from the same size annuity pot.

The first impressions from the pension industry suggest that men will end up getting smaller annuity income than they do now when benefits are bought into line with those of women.

So as far as I can tell, without being discriminatory, we will all end up losers!

In the same category Standard Life were highly commended for their efforts  and Scottish Life were given a commended status in the awards.

Scottish Widows, part of the Lloyds banking group was awarded the Best Personal Pension Provider and the Best SIPP Provider went to A J Bell. The Best Group Pension provider was awarded to Scottish Life with Standard Life being commended.

Among the other awards:

Best Critical Illness Provider – Scottish Provident

Best Online Service Provider – Zurich

Best Protection Service – Bright Grey

Best Investment Service – Prudential

Best Income Protection Provider – Cirencester

Richard Eagling, editor of Investment Life & Pensions Moneyfacts, says:
“This year’s awards clearly demonstrate that there are plenty of providers who are still managing to stand out from the crowd despite the difficult environment facing them.”

The Insurance company says that it is possible to boost income by as much as 10% by shopping around for the best annuity rates and suggests that the benefits far outweigh the effort and time required to check out other options.

Of the 450,000 annuities taken out each year in the UK only 37% are taken out using the Open Market Option, resulting in many retirees struggling to make ends meet, with figures suggesting that 25% overspend in the first year of retirement and 7% overspending by a significant amount.

Poor administration, mistakes and delays in obtaining quotes, often resulting in reduced entitlements are the main complaints received by TPAS over the last year.

From a personal perspective I cashed in a pension plan last year, the process took over three months from start to finish, but the main issue for me was that in the statutory thirty days between accepting a figure from the pension company and receiving the pension, the value had reduced by over 10%.

Obviously I am not alone as TPAS cheif executive Malcolm Mclean describes the current situation as having ‘a double whammy effect’, with many savers seeing the value of their plans fall because of the financial crisis and then experiencing delays in obtaining annuity quotes or awards that reduce their entitlement even further.

The report, which accuses regulators of comprehensive failure and the Government of maladministration, recommends that a scheme be established to consider individual claims for compensation.

The Department of Trade and Industry, Government Actuary’s Department, and Financial Services Authority (FSA) all receive criticism in Ms Abraham’s report. She expects a compensation scheme to be set up within two years and demands a public apology is made to the policyholders who have been fighting for the opportunity to recover their losses since 2001.

The treasury will give it’s report on the publication in the Autumn, allowing themselves time to carefully consider the findings.

The report is expected to be particularly damning of the Treasury, Financial Services Authority and the Governments Actuary’s Department for failing to adequately regulate the company.

Many policy holders held their pension savings with Equitable Life and the cost of claims against the Government is likely to reach £4 billion.

An initial report found that Equitable Life brought about it’s own downfall by being too generous with payments to policy holders. Not satisfied with the report the matter was taken to the European Parliament, which ruled that the UK government held responsibility because it did not ensure that EU legislation on insurance had been correctly implemented.

The troubled company has recently been occupied in selling off parts of the business and in legal actions against former directors and auditors. In 2007 the company sold off £1.8 billion of it’s with profits business to Prudential.

A dossier prepared by the independent consultant Actuarial Review Company (ARC) for the FSA, claims that negligent advice cost the schemes £300million.

The report claims that Scottish Widows advised clients to move from guaranteed annuity funds to the higher risk Scottish Widows managed fund, during the stock market boom of 1999-2000.

The report claims that incentives were used to encourage clients to switch funds, which would leave them exposed to the stock market and subsequent crash in share prices.

The cost of restoring the benefits would be around £1bn says the report.

A High Court action is expected to be started in the coming days.