The challenges facing trustees of defined benefit schemes have grown dramatically over recent years. At times of such difficulty, it can help to go back to the basic principles of good trusteeship.
As well as the responsibility of investing millions of pounds for someone else’s benefit, there are complex technical issues for trustees to grasp, an ever-increasing burden of regulations to meet and volatile economic waters to navigate while being burdened with huge deficits.
It is dangerous to argue about advice if that is only because you do not like the answer you get
The primary responsibility of a trustee is to follow the trust deed and rules that govern the scheme, making sure that members get the benefits they have been promised.
Trustees must be fair to all members and take appropriate account of the employer’s interests too, irrespective of whether they were appointed by the employer or elected by the members.
And while having the right advisers is invaluable, trustees still need to understand and challenge the advice they receive.
Is everyone pulling in the same direction?
The British Airways case currently before the courts highlights several of these issues in practice. The evidence presented suggests that the member-nominated trustees sometimes took a different view to their fellow trustees who were appointed by the employer, favouring the decisions that gave more money to members.
There are many grey areas where trustees can validly disagree. It is slightly worrying however when the board splits along constituency lines, when in theory all the trustees have the same duties.
It also seems in the BA case that the trustees were unhappy with providing consumer price index increases to pensions rather than the higher retail price index increases that had been given historically, mitigating this with a contentious discretionary increase.
I can see valid reasons for a discretionary increase here, even with a deficit, but it is perhaps difficult to justify such an increase on the grounds that the rules are somehow inadequate.
What makes a good trustee?
Since it launched, ‘the 21st century trustee’ has become synonymous with being well-equipped and capable, but what skills make for a good trustee who can help deliver positive outcomes for members?
I am completely in favour of trustees challenging their advisers robustly – not least because we can sometimes be overly conservative – and I am drawn to an approach like that of a rugby television match official, where trustees can ask, ‘Is there any reason why I can’t award an increase?’
However, it is dangerous to argue about advice if that is only because you do not like the answer you get.
I do not know whether the BA trustees got everything exactly right, but they clearly felt they were acting in the best interests of their members. It will certainly be interesting to see the ruling.
Hugh Nolan is president of the Society of Pension Professionals and director at consultancy Spence & Partners
