There are several ways of protecting trustees from personal liability, provided you have acted honestly and reasonably.

The role of a pension scheme trustee is not easy to sell. As if getting to grips with complicated legal and financial matters wasn't enough, there is also the potential risk of personal liability if a member makes a claim. However, you should not panic as there are several ways of protecting trustees from personal liability, provided you have acted honestly and reasonably.

You should comply with your trustee duties. You should act in the way set out in the scheme rules and in the interests of scheme members. Your decisions should be carefully minuted, giving the reasoning behind those decisions where appropriate.

Sometimes you have to make difficult decisions. If the issues are properly considered, advice is taken where appropriate, and a sensible decision is made, the courts are likely to respect your decision. Remember advisers are there to advise. The final decision will be yours.

Very occasionally, trustees will be found personally liable for their actions. Former trustees are still responsible for decisions they took whilst a trustee.

The majority of schemes contain provisions designed to protect trustees from personal liability. Some trustees also have insurance policies. Make sure that you understand what protection is in place, but try not to rely on it too much.

Scheme rules usually contain what is known as an exoneration for trustees which provides the best form of protection. If your actions fall within the scheme's exoneration provisions, which you should check carefully, then you will not be liable. There are limits on what can be covered by an exoneration provision. For example, they cannot protect trustees in relation to fines from the Pensions Regulator and will not apply in the case of dishonesty.

Most schemes also contain indemnity protection for their trustees. The trustee remains remain liable for their actions but the employer or the scheme will pay any losses or damages imposed on the trustee following a claim. As with any indemnity, it is only as good as the person giving it; if that pension has no assets, the indemnity will be worthless. Regulator fines cannot be paid out of scheme assets.

It may be better to use a trustee company rather than having individual trustees. Any claims will be against the corporate trustee, whose assets are limited to its share capital, rather than against the trustee directors themselves.

You could also consider taking out insurance to protect yourselves against claims. Specialist insurance will be required as insurance taken out by the employer to cover its directors and officers will not cover the trustees. You should check the terms carefully to make sure that you are properly covered. The cost of insurance can only be paid out of scheme assets if the rules allow. 

It is difficult to introduce or amend these protections once you have been appointed as a trustee. You should first seek advice if you intend to make any amendments.
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