How to protect yourself from complaints and litigation

Trustees may be challenged over: 

• Miscalculation of DB benefits;
• DC transfer delays;
• Decision-making;
• Situations that are not their fault – for example, an administrator error.

Both the scheme rules (exoneration and indemnity provisions) and insurance can offer trustees protection against individual member complaints and general litigation, but many trustees are unfamiliar with these protections and how to make use of them.  

Questions have also been raised about whether trustees should seek to rely on these protections at all or instead look to settle disputes by other means, and the approach taken by different trustees and schemes can vary significantly. 

More could rely on exoneration provisions

Under their scheme’s trust deed and rules, trustees are likely to have the benefit of an exoneration provision, which effectively provides complete protection from member complaints for trustees in carrying out their duties, except for investment decisions.

But can these provisions be used to legitimately deflect complaints to other parties? In the example above involving the administrator, would it be possible for the trustees to rely on an exoneration clause to say that a member should direct their complaint to the administrator directly? 

The answer will obviously depend on the facts of the matter, but legally this would appear to be a proper use of this kind of provision and is something more trustees could rely on in the future. 

Indemnity provisions: Only as good as the covenant

Under most scheme rules, the scheme employer will indemnify trustees in respect of any actions taken in the course of carrying out their trustee duties. 

However, trustees should be mindful of the fact that an indemnity provision is only as good as the employer covenant that sits behind the scheme. If there is a weak employer, or no employer, then the indemnity is likely to be worthless.

In this situation, an insurance policy might be one option to consider as an alternative. 

Insurance policies vary considerably

Despite their significant cost, trustee insurance policies are becoming more common, especially in relation to larger schemes.

However, the terms and protections offered by each provider vary considerably. As such, it is well worth taking the time to check whether your scheme has a policy in place and if so, what its terms are.

Alasdair Blackshaw is an associate at law firm Sackers