Delegation

Article by Richards Butler

To aid the efficient day-to-day administration of pension schemes, many schemes permit the delegation of certain powers and discretions. However, when Trustees delegate their powers and discretions there are a number of considerations which need to be borne in mind to ensure that any decisions made by the delegates are valid. A recent case looked at by the Pensions Ombudsman involving the Barnado's Staff Pension Scheme highlights the potential cost to schemes of delegation going wrong.

It is vital to ensure that the Trustees have the power both to delegate the power or discretion concerned and to delegate it to the intended delegates. Usually this will require the power to be contained in the Trust Deed and Rules governing their scheme. Delegation of investment powers may, however, be made under section 34 of the Pensions Act 1995 to a fund manager (authorised under the Financial Services Act 1986 where the investments are `investments' for the purposes of the Act) or to two or more trustees, without the need for specific authority in the Trust Deed and Rules.

Once it has been established that there is sufficient power to delegate it is important to ensure that any resolution of the Trustees to delegate is sufficiently clearly worded to ensure that it is possible to determine whether a power or discretion has been delegated. In the recent case looked at by the Pensions Ombudsman, the Trustees of the Barnado's Staff Pension Scheme had passed a resolution delegating decisions about the payment of lump sum death benefit where there were 'no difficulties in establishing the rightful beneficiary'. There are a number of problems with that wording. For instance, there can be no 'rightful' beneficiary in a situation where benefits are payable only as a result of the exercise of Trustees' discretion.

Once a power or discretion has been delegated, the delegates must both make the decision and be seen to have made the decision. In the Barnado's case, two Trustees to whom decision-making on the payment of lump sum benefits had been delegated did not reach a valid decision because one of them had simply signed and dated a memo from the Pension Scheme Manager without filling in the space left for a decision.

In the Minutes of the next meeting of the full Trustees held after the decision has been made a record must be made of the time, place and date of the decision and the names of the Trustees who participated in the decision. This is in order to comply with Regulation 13 of the Occupational Pension Schemes (Scheme Administration) Regul-ations 1996. Failure to do so will result in the Trustees being liable to penalties from OPRA but it will not result in the invalidity of the delegated decision.

Failure to ensure that the three steps set out above are complied with can result in serious consequences both for the Trustees and beneficiaries. In the Barnado's case, because the Trustees had not made a valid decision within the two years allowed by the Trust Deed and Rules, the death benefit fell into the member's estate to be held on trust for the member's children and his step-daughter. However, the member, in an expression of wish form completed less than two years before his death, had indicated that he wished his second wife to benefit. The Trustees were obliged to make the payment of the benefit to the member's estate even though they had already made the payment to his second wife, regardless of whether or not they were able to obtain a refund from her.