Trustees you can trust

 

If your company considers itself to be a good employer, it probably offers an employee pension scheme. But how much management time does running that scheme involve? And would it be better if running the staff pension scheme was outsourced to a provider like Zurich Trustee Services Limited (ZTSL)?

 

Yes, your company pension scheme can be run in-house with lay volunteers acting as trustees. But wouldn’t it be safer, wiser and more efficient to have your company pension managed by independent, experienced professionals?

There are about 400,000 people in Ireland who are members of private sector pension schemes, which between them have more than €120 billion worth of assets under management. Most of these schemes are trust-based, mainly to ensure that the assets of a pension scheme are kept fully separate from the assets of a company, but also for reasons of tax efficiency.

 

By law, all of the schemes will have a registered administrator to carry out core administration functions and, with almost no exception, will have outsourced the investment management of the fund. But in many cases, the scheme’s trustees will be company appointees who, most likely, are working in a voluntary capacity. This is all well and good except that the duties and responsibilities of pension trustees are becoming more complex and more onerous.

 

A trustee meeting, fully minuted and with a proper agenda, must be held at least once a year – but good practice is that meetings should be held more regularly. The trustees should also be able to challenge the registered administrator and the fund’s investment management as to their ongoing performance. Such are the responsibilities of the role that training for trustees is mandatory within six months of their appointment and every two years after that. There is also a Trustee Handbook, published by the Pensions Authority, that provides some guidance – it is 183 pages long and is further supplemented by online FAQs and guidelines on the Pensions Authority website.

 

“Being a trustee is a bit like being a company director,” says Rose Leonard, a ZTSL director who is also Zurich Group’s customer relations manager. “There was a time when, if you were asked to go on a board, you would have no hesitation about saying ‘yes’ and all it would involve, maybe, was turning up to a board meeting a couple of times a year. But now, being a company director is a bit more onerous and you might think twice about taking on the responsibilities and the liabilities.”

 

Ironically, says Leonard, “In Ireland, many employers act as trustees. Quite often, directors of a company will unintentionally find themselves in the role of pension scheme trustee.”

 

And it’s not just the matter of ensuring that the trust is being run according to the regulations, which could leave well-meaning, but fallible, trustees liable to fines of up to €25,000 each and imprisonment for up to two years. There are also issues that are less black-and-white, but which have a long-term bearing on pension members’ welfare in their retirement years.

 

You may have volunteered to be a trustee on a staff pension scheme for the best of reasons, but you still have to face your colleagues and look them in the eye if the scheme under-performs substantially because the invested funds were not managed responsibly. Wouldn’t it be much better if oversight was in the hands of professional trustees like ZTSL who are well-versed in all aspects of pension governance?

 

“ZTSL is a separate legal entity to Zurich Life Assurance,” says Leonard. “We act as pension scheme trustees for indigenous and multinational companies ranging in size from quite small schemes to medium and large schemes.

“The primary responsibility of the trustees is to safeguard the interests of the pension scheme members. Trustees make critical decisions regarding investment decisions, outsourcing arrangements, risk and controls. We have a duty to discharge all the responsibilities set out in the trust deed and rules. Trust law requires the trustees of pension funds to invest the assets prudently. The obligations on trustees are set to increase further in the coming years, as a result of proposed higher governance requirements and more rigorous scheme regulation – for example, the European Commission’s IORP II directive, which comes into effect in the next year and a half.

 

“As there is substantial money involved in pension schemes, lay trustees and company directors need to be very aware of the responsibilities they are taking on. If they are not competent enough to take on these responsibilities, they need to consider other solutions like using Zurich Trustee Services Limited.”

 

An outsider might imagine that managing a pension scheme was quite hum-drum, but once you get into pension scheme benefits the personal complications involved would be worthy of a plot in Coronation Street or Fair City. “As a trustee, how would you distribute the death benefits of a scheme member who had a wife and two children, but had left her and was now living with another woman with whom he had another child?” asks Leonard, by way of giving an example. “And does the situation change if he had written a ‘letter of wishes’ stating that he wanted none of the assets to go to the wife and the children of that relationship, and all of the assets to go to his new partner? And what is the situation if there is a fourth child from a third relationship that isn’t mentioned in the letter of wishes? And what if there is also an adult dependent, an elderly parent perhaps, who was relying on the support of that now deceased scheme member?

 

“If you were the trustee of a company pension, you would probably need to take legal advice on matters like that and, with top-up bills, that could soon become quite expensive. At Zurich, we have a lot of experience in dealing with quite complicated cases and have access to substantial records on various legal precedents. If a situation is completely new to us, we have access to a team of in-house lawyers. We do benefit from economies of scale.”

 

As Brexit fast approaches, Leonard foresees more larger-sized enterprises choosing to outsource their trustee-based company pension schemes. “Quite a few medium-sized enterprises with a presence in Ireland and the UK, and maybe one or two other European countries, will have one HR director for the whole company and often the bulk of their human resources activity will be in the UK, not Ireland. In such a situation, it is very difficult for that person to keep abreast of changes in Irish pension law. It is much easier, more efficient and safer for them to contract out the management of that trusteeship to a third party like ZTSL.

 

“Ireland-only or multinational, employers who outsource trusteeship to ZTSL can have peace of mind that their scheme is being taken care of and that they are much better placed to focus on running and managing their businesses.”

Zurich Trustee Services Limited (ZTSL) is a professional corporate trustee company with a wealth of knowledge and experience in trusteeship and pensions generally. Appointing ZTSL as trustee offers the following benefits: