“I talk to trustees every day, and I’ve found that a lot of them don’t understand their responsibilities,” says Bernard Walsh, head of pensions with Bank of Ireland Life. “When we walk them through it, they go pale.”
He says that in particular many trustees don’t understand that they could be liable for an on-the-spot fine if they don’t carry out their duties under the Pensions Act.
“They think that because they’re acting on behalf of the employer, the employer will carry the can. That’s not the case. As a trustee you have responsibilities.”
Pension scheme trustees are responsible for the administration of funded occupational pension schemes and must comply with their requirements under the scheme. If they do not fulfil certain duties, such as reporting to the Pensions Board, keeping records up-to-date, issuing annual reports and benefits statements, and paying benefits to members, they can be subject to a fine of €2,000 for each offence.
However, Cathy Roe, legal consultant with Invesco, says trustees are only too aware of their duties, thanks in part to the introduction of compulsory training. “We’ve found that trustees are very aware of their responsibility and nervous of it, particularly in defined benefit schemes. There’s an awareness that investment is so key.”
David Malone, head of operations at the Pensions Board, says the trustees’ job is to manage the fund in the best interest of its members. “They need to ensure the risk investment strategy of their scheme is suitable and adequate for their membership. They also need to make realistic investment choices to deliver on benefits.”
Record-keeping
In both defined benefits schemes, where trustees must ensure there is enough money to meet the benefits commitment, and defined contribution schemes, where they must keep track of contributions and length of service in order to accurately apply the benefits formula, poor record-keeping and administration can lead to members not receiving all the benefits to which they are entitled.
“Like anything involving systems and record-keeping, you need to make sure the records are kept correctly,” says Jerry Moriarty, chief executive of the Irish Association of Pension Funds. “It can be the difference between someone enjoying a comfortable retirement or having very little to live on.”
Since 2008, trustees are legally required to appoint a registered administrator to carry out core administration functions such as preparing the annual report and benefits statements, and maintaining records of the members and their entitlements.
In its 2012 annual report, the Pensions Board warned that the proportion of schemes where the trustees have not fulfilled this legal responsibility is too high. However, Malone says these are mostly historical anomalies and are in the process of being cleaned up.
“In the vast majority of schemes, trustees would appoint professional pensions administrators to manage the records,” he says. “You can become one yourself, but you must be registered with the board.”
Best practice
Currently, 170 registered administrators operate in Ireland, and between them they look after 150,000 pension schemes, worth about €80 billion. Although the Pensions Board has an oversight role and will withdraw registration for noncompliance, trustees also have a responsibility to manage this relationship.
“Generally, trustees outsource administration and need to make sure the outsourced person is fit to do that and have the records and administration in place,” says Moriarty. “Don’t be afraid to ask; there’s no such thing as a stupid question.”
Bernard Walsh says trustees can take several steps to ensure best practice. “The first step is to have good governance around the trustee board with a broad level of representation from different levels of the business.
“The second is that trustees should be fully up to speed and have completed their training. And the third is that they should meet on a regular basis.”
David Malone adds that trustees should communicate clearly with their members. “When you’re communicating, do so in clear, plain language. If you have good housekeeping and records, it’s easier to communicate clearly.”
Pension scheme members can play a role in ensuring their fund is being managed properly by checking that they receive their annual report and benefits statements on time, making sure they are happy with the performance of their fund and querying anything they don’t understand.
“The annual report shows how well your scheme is run. If you’re getting poor explanatory information then you need to speak up,” says Roe. “You get the trustees you deserve.”
Trustee training: Room for improvement
Since 2010, pension scheme trustees have been required to undergo trustee training to make sure they understand their responsibilities.
“Trustees have a very responsible job and they come from all walks of life,” says the Pension Board’s David Malone. “They are managing other people’s money. They must be empowered to push back against professionals.”
Training is a legal obligation, which trustees must undergo within six months of their appointment and at least every two years thereafter. Confirmation of training must be declared in the annual report and noncompliance can mean a fine of ¤2,000. Employers can also be prosecuted if they do not provide access.
The Pensions Board provides a free online training programme for trustees, with each of the nine-hour modules covering a different topic, such as basic pensions knowledge, the duties and responsibilities of trustees, scheme rules, financing, investing, administration and communications.
Trustees can also complete courses via a self certified trainer listed on the Pensions Board website or through a corporate trustee service provider, life company, broker or legal adviser. Jerry Moriarty from the Irish Association of Pension Funds says that while there is now a greater expectation that trustees are properly educated, there is still room for improvement.
“I would like to see more clarity around trustee education. It is very clear what the requirements are when people first become trustees, but the ongoing training is vague. It would be good to have requirements along the lines of continuous professional development, for example, a certain number of hours.”