Trustees

Trustees’ duties

Trustees have a duty to agree with their principal employer a “Statement of Funding Principles” from which the contribution rates are determined. 

• To achieve this, the Pensions Regulator will expect trustees to:
  • Understand the basis of the actuary’s valuation and recommendations
  • Undertake commercial negotiations with the employer
  • Act independently and for the good of the scheme
  • Form a view as to what the employer will be able to pay to fund the pension scheme
  • Monitor closely the employer covenant and to react to ‘Type A’ events
  • The Pensions Regulator will also expect trustees to be fully aware of all the financial implications of any decisions made.

What trustees need to know?

• What is the current financial position of the employer?
  • What assets are there?
  • What is the true value of the assets?
  • How does the scheme rank against all the other creditors?
  • What is the expected future position of the employer?
    • What are its future prospects if no action is taken?
    • What will be the effect of any proposed action(s)?
    • What alternatives are there for the employer and the scheme?
    • If insolvent, what would be the outcome for the scheme?
  • The trustees need to fully understand the risks and the outcome of each of the potential options.

What actions can be taken?

• Strengthen the scheme’s position over future events:
  • Obtain the right to veto employer’s future actions that may affect the scheme such as dividend payments
  • Get agreement for contingent contributions to be made should a specific event occur
  • Improve the scheme’s current position:
    • Get funds or assets set aside
    • Obtain security over uncharged assets
    • Agree priority agreements with other secured lenders
    • Obtain additional third party security:
      • Guarantees from parent companies
      • Insurance bonds