'Professional' trustees likely to receive higher penalties for wrongdoing, says Pensions Regulator

Out-Law News | 14 Aug 2017 | 10:02 am | 2 min. read

Pension scheme trustees that are considered to be 'professional trustees' can expect higher penalties for wrongdoing, The Pensions Regulator (TPR) has said.

The regulator has announced its intention to make greater use of its enforcement powers, including its power to impose monetary penalties, where there have been scheme governance and administration failings.

This week, TPR finalised its policy on when and how it will impose monetary penalties (17-page / 68KB PDF) on trustees. It has also published a revised definition of who the regulator considers to be a 'professional trustee' (8-page / 42KB PDF), which takes on board feedback from the pensions industry. TPR will normally consider somebody to be a professional trustee if they have represented themselves to one or more unrelated schemes as having expertise in trustee matters generally.

Whether the trustee is paid by the scheme will not determine the trustee's 'professional' status, according to the regulator. For example, TPR said it would not usually consider a "remunerated" trustee to meet the definition if that person is or has been a member of the scheme or a related pension scheme, if they are employed by or a director of a participating employer, and if they do not act, or offer to act, as a trustee in relation to any unrelated scheme.

Pensions expert Alastair Meeks of Pinsent Masons, the law firm behind Out-Law.com, said that, for the regulator, "context is everything".

"If a trustee is holding himself or herself out as an expert for one or more unrelated schemes, they would normally be considered to be a professional trustee, regardless of the charging arrangements," he said. "A trustee who is paid but who acts for only one scheme and is not seeking new appointments will normally not be regarded by the regulator as a professional trustee."

"The regulator's approach is slightly different from that of the courts. The courts hold trustees to higher standards of competence if they are paid. However, the courts do not adjust the amount of damages payable for trustees once liability has been established by reference to their professional standing," he said.

"The offences which the regulator is responsible for patrolling are mostly offences of strict liability. The regulator would probably prefer to hold professional trustees to a higher standard, but it can only differentiate in the punishment. The regulator's thinking is muddled, but a rough justice is done," he said.

The new description will "[pave] the way to build standards and accreditation for professional trustees", the regulator said. These are currently under development by the Professional Trustee Standards Working Group, which is made up of industry professional bodies including the Association of Professional Pension Trustees and the Pensions and Lifetime Savings Association.

The Pensions Regulator's penalty policy divides breaches into 'bands' ranked from one to three, depending on the severity of the breach. Band one offences carry a maximum penalty of £1,000 for individuals and £10,000 for corporate trustees; band two maximum penalties of £2,500 and £25,000; and band three maximum penalties of £5,000 and £50,000. The middle point of each band will usually be taken as the starting amount, with the final penalty adjusted to take account of any aggravating or mitigating factors.

A breach will be assigned to a band level based on its nature and impact, or potential impact. Factors that may be taken into account by the regulator include the likelihood and extent of the impact of the breach on pension scheme members, including the number of members affected; the likelihood and extent of the impact of the breach on the employer covenant; the likelihood and extent to which the breach may lead to compensation being payable from the Pension Protection Fund; and any evidence of dishonestly, lack of integrity, fraud, deliberate concealment or intentional or reckless breach.