Robust trustee decision-making in these difficult times

So, you’re a pension scheme trustee, and a pretty experienced one at that.  When making a decision that involves your exercising a discretion, you are familiar with the key legal principles:

• Correctly understand the question you are considering
• Be sure of the correct legal position
• Take account of all relevant factors and ignore any irrelevant ones and reach a decision that is not ‘perverse’ (essentially, legal-speak for making a decision that no reasonable person could have reached)
• Consider what is fair and equitable in the circumstances
• Exercise the discretion only for its proper purpose.

You have applied these principles more times than you can recall when considering individual members’ benefits such as death benefits and incapacity pensions.  But you may not instinctively do this when exercising discretions that affect members more generally.

Yet it is arguably even more important to get them right in this context given the wider potential implications for members and other beneficiaries. Examples of these sorts of discretionary decisions include closing the scheme to future accrual, switching from RPI to CPI, and corporate and scheme restructurings (including deficit contribution deferrals).

Given the financial pressures that many employers are now facing, we may well see many more proposals from employers.  In such circumstances, it can seem that the role of a trustees is to try to find and agree the least worst option in the circumstances.

Stick to the key principles

There’s no denying the weight of responsibility, but if trustees remain focused on the key principles, and follow correct processes, their decision should withstand even the fiercest scrutiny.  Remember that this cannot be overturned simply because someone, even a High Court judge, might have made a different decision.

Here are a few practical suggestions:

• Of course, get good advice –that should ensure you are on the right path. But you also have an important role to instruct, question and sometimes even challenge your advisers.
• Remember your decision may be subject to future scrutiny – by members, the employer, TPR or even a parliamentary committee. So be careful.  Some communications might be protected by legal professional privilege, but that is a complex legal area and it is often difficult to apply in practice in the heat of the moment.  A good rule of thumb is to assume that all communications could be read by someone who might be motivated to undermine your decision, and so treat them with the formality and seriousness that the matter under consideration deserves.
• Manage conflicts of interest effectively; this will often be the first port of call for anyone seeking to scrutinise or challenge a decision.
• Keep an open mind and do not pre-judge a matter or give any suggestion that you may have pre-judged it.
• Although you should act in what you believe to be the overall interests of the scheme’s beneficiaries, balancing the interests of the different classes, you should also consider the employer’s interests or wishes and accord them appropriate weight.

Sharing the responsibility

You might say that is all well and good but you still don’t feel comfortable with the weight of responsibility given the enormity of the potential consequences. Or you might think that your decision, whatever it is, might be legally challenged and that would result in a lengthy period of great uncertainty.  Faced with such concerns, you can go to the courts to ask that your proposed decision be approved and, other than in certain exceptional circumstances, that cannot then be legally challenged.

Although this route has not been commonly seen in the pensions arena, given the enormity of the decisions that pension scheme trustees might well be facing in the near future, it may be an option that is adopted more regularly.

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