opdu - Code for Independent Trustees

The opdu Report - Issue 17, November 2004

Code for Independent Trustees

Code for Trustees A “Code of Guidance” for independent trustees was recently published. It was developed by the Independent Trustee Group of the Pensions Management Institute and provides a good indicator of best practice.

The Code of Guidance is summarised in the Contents Summary as follows (IPT means Independent Pension Trustee):

1) Appointment procedures: IPTs must be appointed in accordance with the terms of the scheme documents and the more detailed provisions should be set out in a formal letter of appointment. IPTs must have the requisite knowledge, experience and time available to carry out their role. They must comply with all legal requirements and on appointment familiarise themselves with the scheme.

2) Dealing with co-trustees and third parties: The operation of the trust cannot be carried out in isolation. IPTs need to maintain professional working relationships with co-trustees (if any), the scheme sponsor, beneficiaries, advisers, and regulators.

3) Investment: The implementation of investment policy will differ according to the powers of investment in the scheme documentation, the size and complexity of a scheme, the membership profile and the nature of the benefits promised. IPTs must understand all the factors that play a part in determining investment policy and have a thorough knowledge of the available asset classes.

4) Risk Management: Risk is any contingency that affects the ability of the trustees to meet their commitments - the most important of which is to pay benefits as they fall due. There are different types of risk and in each case IPTs must be satisfied that any risk is understood and mitigated as far as possible.

5) Compliance: Compliance for an occupational pension scheme means compliance with the trust deed and rules, pension and other legislation and the requirements of the regulators. IPTs should ensure that the trustees develop strategies for ensuring that these basic requirements are met.

6) Insolvency: IPTs involved in schemes that are winding up are subject to all the requirements of an IPT. However there are a number of additional requirements and IPTs involved in scheme wind-ups must have specific knowledge and experience relevant to wind-up situations. An IPT appointed to a scheme in wind-up

The Code of Guidance for Independent Trustees is not the Pensions Regulator’s Code of Practice. But will no doubt be taken into consideration by those responsible for developing the Regulator’s Codes.

Trustee Code of Practice is available for download here (321kb PDF file)

Insurance Rates

Until recently, market rates for all classes of insurance were rising dramatically and the Professional and other Errors & Omissions liability sector particularly suffered. Various factors contributed to this situation including: significant claims payments; poor investment returns preventing insurers from subsiding underwriting losses from investment income; and a reduction in the number of insurance companies.

In addition, some insurers reduced the limits of liability that they were prepared to underwrite while at the same time increasing the deductible (excess) to be borne by the insured. Underwriters have also become increasingly concerned about scheme deficits and some insurers are excluding cover for sponsoring employers as a result. We are pleased to report, however, that opdu has maintained its extensive cover.