What do pension scheme trustees do?

Do pension fund trustees get paid? Professional trustees are; others may volunteer, and a scheme's trust deed can set its own rules on pay.

Trustees are the people, or the company, who legally run a trust-based workplace pension on behalf of its members. Unsure whether your own pension is trust-based, or what its trustees decide for you? An FCA-authorised adviser can help untangle that, and this page's form arranges the phone call at no cost.

Who are the trustees of a workplace pension?

The Pensions Regulator (TPR) says the law "requires that most occupational pension schemes in the UK are set up as trusts", which keeps the scheme's assets separate from the employer's. It defines a trustee as "a person or company, acting separately from the employer, who holds assets in the trust for the beneficiaries of the scheme".

Individual trustees usually sit on a board. Where the trustee is a company, its directors carry the same responsibilities as an individual trustee, and the employer itself may be the corporate trustee.

Occupational schemes are defined benefit, defined contribution or a mix of the two; see final salary pensions and defined contribution pensions for how each works. TPR's guidance lists group personal pensions and stakeholder schemes separately, as other ways an employer can provide retirement benefits, so it is worth checking which kind your employer uses.

Do pension fund trustees get paid?

It depends on the kind of trustee. TPR's trustee guidance, issued in December 2007, describes some trustees as volunteers, often scheme members, employees of the sponsoring employer or both, and others as "professional trustees who are paid for their services".

TPR normally treats someone as a professional trustee if they have "represented themselves to one or more unrelated schemes as having expertise in trustee matters generally (rather than just in certain areas)". It expects professional trustees to meet higher standards than other trustees.

For a scheme under the law of England and Wales, the fallback is section 29 of the Trustee Act 2000. A trust corporation can take reasonable pay from the trust funds, and so can a trustee acting in a professional capacity (other than a sole trustee) if every other trustee has agreed in writing. That fallback does not apply where "any provision about his entitlement to remuneration" is made by the trust instrument or by legislation, so where a scheme's trust deed deals with pay, the deed decides it.

Expenses are separate: under section 31 a trustee is entitled to be reimbursed from the trust funds for "expenses properly incurred by him when acting on behalf of the trust". Both sections extend to England and Wales only, and TPR notes that some aspects of trust law are dealt with differently in Scotland.

An employee who is a trustee of a trust-based scheme can take reasonable time off work for trustee duties and training, and the employer must pay for that time (Employment Rights Act 1996, sections 58 and 59).

What the people running your own scheme actually receive is a point an adviser can clear up for you after you send in the short form.

What are pension trustees responsible for?

TPR says a trustee is "responsible for the proper running of the scheme – from the collection of contributions, to the investment of assets and payment of benefits". In practice that covers several jobs:

• Following the deed and rules. The deed and rules set the trustees' powers and procedures.
• Acting in members' best interests. Beneficiaries include active, pensioner and deferred members, dependants, and former spouses holding pension credits; in some circumstances the employer is one too.
• Checking contributions arrive. Employers must pass employees' contributions to the trustees within 22 days of the end of the month they were taken from pay (19 days if paid by cheque), and trustees must monitor that the correct amounts are paid on time.
• Setting the investment approach. The deed usually gives trustees the power to decide the investment strategy and invest the scheme's assets.
• Using discretion. A discretionary power lets trustees choose, for example, whether to pay a pension on early retirement.
• Appointing advisers. Under the Pensions Act 1995 trustees must appoint certain professional advisers; a scheme with a defined benefit element must also have a scheme actuary.

Who can become a pension trustee, and who picks them?

Generally anyone aged 18 or over who is legally capable of holding property can be a trustee. Anyone convicted of an offence involving dishonesty or deception (unless the conviction is spent), an undischarged bankrupt and anyone disqualified as a company director cannot. TPR can also prohibit a person it considers not "fit and proper", and a scheme's own auditor or actuary cannot normally be a trustee of it.

The trust deed normally gives the employer or the existing trustees the power to appoint. There is one important limit. Section 241 of the Pensions Act 2004 requires the trustees of an occupational trust scheme to secure that arrangements provide for at least one-third of trustees to be member-nominated, with active and pensioner members (or an organisation representing them) eligible to take part in the nomination. Schemes where every member is a trustee are among those outside it, and where every trustee is a company, section 242 applies the same one-third rule to that company's directors instead.

What happens if pension trustees get it wrong?

TPR says trustees "could be personally liable for any loss" caused to the scheme by a breach of trust, and they stay liable for decisions taken while in office after they leave. Trustees share joint and several liability, so one can be held responsible for another's breach. A scheme's rules may protect trustees from personal liability except for actual fraud, but a fine from TPR or a court cannot be paid out of scheme assets, nor can scheme assets buy insurance against fines. TPR can order a breach put right and, in more extreme cases, fine or remove trustees.

The law also expects trustees to know their job. Section 247 of the Pensions Act 2004 requires "the law relating to pensions and trusts" and the principles of funding and investment to be understood. Most new trustees have six months from appointment to acquire it (independent trustees and those appointed for claimed expertise do not), and TPR provides a free online Trustee Toolkit. It adds: "We do not expect trustees to take on the mantle of experts – we want trustees to be able to understand, discuss and challenge the advice that experts give them."

Employer insolvency is a separate question: see are final salary pensions protected.

What this means for your own pension

The trust deed and rules are the documents that set what your trustees may and must do, and the scheme or your employer can tell you who they are. Small self-administered schemes, where members often run the scheme themselves, are covered in SSAS pension trustees, and the rights of employees under auto-enrolment are in workplace pension rules.

A transfer or retirement date may turn on a trustee decision. Weighing your pensions, tax and health together is what an FCA-authorised adviser can do on a phone call, and the form here gets that call arranged without charge.

More on pension trusteeship

Do pension trustees work for the employer?

No. TPR says a trustee's duty must not be to any group or individual they are connected with, such as the employer or a trade union, and the employer's cash-flow needs must not influence them.

Can an employer dismiss me for acting as a pension trustee?

It is against the law to dismiss a trustee, or treat them detrimentally, for carrying out their duties or using their powers properly. TPR says the Employment Rights Act 1996 gives that protection to trustees who work for the employer, with a right to complain to an employment tribunal.

Can a scheme member also be a trustee?

Yes. The Pensions Act 1995 allows a member-trustee to benefit from a decision the trustees take, as long as it benefits members generally or a specific class of members.

Who decides who gets a lump sum when a member dies?

The trustees, where the scheme's rules give them that discretion; TPR lists who receives a lump-sum death benefit among the choices a discretionary power can cover. The rules and the facts decide, and the wider picture is in pension death benefits.

Can trustees pass their decisions to someone else?

Not usually. TPR says trustees cannot normally delegate their powers unless the trust deed and rules allow it, with an exception for investment decisions under pensions law. Even then they remain responsible for the actions taken.

Where the trustees' powers touch your own plans, an adviser can talk through the detail by phone once the short form here has been sent.