Professional trustee; an update

The Pension Regulator sets out its revised description of a 'professional trustee.

Earlier this year we reported that the Pensions Regulator (tPR) had issued a consultation document on its revised description of a 'professional trustee'. We now have the final professional trustee description policy (issued August 2017).  This policy is much more comprehensive and includes an expectation that trustees and scheme sponsors will take steps to understand whether a trustee meets tPR's description of a professional trustee. 

So, to ask the obvious, why is tPR's description of a professional trustee important?

As part of the drive to improve governance standards, tPR has felt it helpful to clarify the distinction between professional and lay trustees.  Accordingly, the status (professional or lay) of a trustee under tPR's policy is relevant to:

• the standards expected when carrying out their trustee duties; 
• the application of tPR's monetary penalties policy (for further comment please see below);
• the completion of the scheme return; and
• requirements to notify the scheme sponsor and other scheme trustees. 

How does tPR describe a professional trustee?

TPR considers a professional trustee to include any person, whether or not incorporated, who acts as a trustee of the scheme "in the course of the business of being a trustee".  This description is subjective, and it is not always easy to apply to specific trustee circumstances.

Is a trustee automatically considered to be acting in the course of the business of being a trustee if they are being paid? Not necessarily, as this is just one factor to be considered.  TPR will not normally consider a remunerated trustee to be acting in the course of business of being a trustee if:

a)            they are or have been:

• a member of the pension scheme or a related pension scheme;
• employed by, or a director of, a participating employer in the pension scheme (or an employer in the same corporate group); and

b)            they do not act, or offer to act, as a trustee in relation to any unrelated scheme.

However, where an individual "represents or promotes" themselves to the trustees or sponsors of one or more unrelated schemes as having expertise in trustee matters generally (rather than just in certain areas), whether for remuneration or otherwise, tPR would normally consider them as acting in the course of the business of being a trustee. The challenge here is to decide what 'represents or promotes' actually means in practice.

If a person is appointed as a trustee because of their particular expertise, e.g. investment experience, and providing that they have only one trustee appointment, tPR's policy indicates that they will not be classed as providing their services in the course of business as a professional trustee.  This is because the individual is only representing themselves as having expertise in a particular area rather than in a range of trustee matters.

The situation would appear to be different if the individual acted as a trustee on a number of schemes, even if it was only in terms of representing themselves as having experience in a particular area, not trustee matters generally. Simply by taking on a number of trustee appointments, tPR is likely to consider them to be acting in the course of the business of being a trustee.   

What actions are needed then if I am a professional trustee?

Where a trustee meets tPR's description of a professional trustee in respect of one scheme tPR considers them to be a professional trustee on all schemes of which they are a trustee. Lay trustees should, therefore, take steps to understand what might take them from a non-professional trustee status to a professional trustee status. Where a trustee appears to meet tPR's description of a professional trustee, tPR expects them to notify the sponsor and any other trustees on their scheme of their professional trustee status as soon as reasonably practicable.

The scheme return also now requires trustees to identify whether they have professional trustee status under tPR's policy. However, its worth remembering that the classification in the scheme return is not fixed in stone, as tPR can form its own opinion based on the facts of the case. As always, careful consideration should be given to completing the scheme return. Knowingly or recklessly supplying false or misleading information in the return is a criminal and civil offence.

Are there any financial consequences of being a professional trustee?

Under tPR's monetary penalties policy, higher financial penalties will normally apply to trustees classed as professional trustees who fail to meet their duties.  It is important to note, however, that it is not just the classification of a trustee' status that determines the size of penalty. A sliding scale will apply to the quantum taking in to account various relevant factors, for example, whether the trustee is remunerated, their particular experience, etc.

Next steps for trustee boards

• Trustee boards should consider whether any trustee/trustee director falls within tPR's professional trustee description.
• Where a trustee's status under tPR's policy is unclear, we can assist trustee boards in forming a view as to whether tPR's description of a professional trustee appears to be met.
• Once trustee boards understand whether a trustee appears to meet tPR's description of a professional trustee, relevant information should be notified to the scheme sponsor and included in the scheme return.

The information in this article is necessarily of a general nature. Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors.