Organisations that provide pensions and the trustees of such schemes play crucial roles in maintaining their suitability and integrity. Responsibilities include prudent management of scheme assets, compliance with regulation, enrolment and communication with members, accurate record keeping and prompt payment of contributions. As a consequence, ‘sponsoring employers’ and trustees of schemes can be exposed to a range of risks, with personal liability in some circumstances. Whilst indemnities may be available, any loss will need to be funded by the scheme or the scheme sponsor. Moreover, both the sponsoring employer and the scheme itself may be exposed to potential loss if things go wrong. In many cases, pension liability insurance can help to manage the risk to the employer, the scheme and the trustees, including the following examples:
- Two retired trustees were accused of negligent investment of scheme assets by the newly appointed trustees. It was alleged that the transfer of assets to a higher risk fund, resulting in a significant reduction in value, was a breach of their fiduciary responsibility to the scheme. Total loss: £223,000
- A scheme member took early retirement on the grounds of ill health. An expected discretionary increase stated in the pension scheme handbook was not provided because the scheme was in deficit. A complaint to The Pension Ombudsman followed. The sponsoring employer advised they were not able to make the contributions required to enhance the benefits of the member. The complaint was also considered against the trustees, concluding that no criticism of the decision taken could be made. Although the complaint was found in favour of the trustees, costs were incurred to comprehensively defend the position. Total loss: £19,000
- A sponsoring employer was accused of breaking a promise to treat a scheme member as a specific and separate class, which would have had potentially beneficial treatment from a taxation perspective. The individual took the matter to the Money and Pensions Service, who agreed with the scheme trustees that no evidence existed to support the complaint from the member. Although the sponsoring employer was not found at fault, they were required to defend their position. Total loss: £24,000
- Scheme trustees were accused of improper investment of scheme assets in a property development loan which ultimately defaulted. Trustees were found to be liable for failing to undertake appropriate due diligence in granting the loan and in the assessment of the feasibility of the construction project. Total loss £267,000
- A scheme was accused of incorrectly equalising benefits of male and female members. On correction of this error, the true funding position dramatically declined. Whilst the sponsoring employer brought a claim against the scheme administrator for negligence, they also pursued the trustees for a breach of obligation in ensuring the scheme was correctly administered. A settlement with members was eventually reached. Total Loss: £22,000
- Trustees and administrators were found to have been late in supplying important information to a member who was looking to transfer their pension out of the scheme upon retirement. It was alleged that, as a result of the delay, falls in the stock market reduced the transfer value against what it would have been had the information been supplied in a timely manner. A claim of maladministration was upheld and the loss included damages in addition to defence costs. Total loss: £77,000
- A scheme member requested an amendment to retirement age, having already changed it previously. The request was based on future predictions of annuity rates. When the request was denied the member complained to The Pension Ombudsman, who decided that the trustees had not acted inappropriately. Legal costs were incurred in defending the matter. Total loss: £20,000
- Scheme members issued proceedings against trustees for breach of fiduciary duty in providing the ability to invest part of the pension in a higher risk option, which was backed by a sub-optimally performing financial institution. Allegations also included breaching of the duty of disclosure by providing incomplete communications to members. Total loss £121,000
- A deferred member became entitled to draw down benefit, having left the sponsoring employer several years earlier. When in receipt of the annual benefit quotation, it appeared to be significantly less than a quote he had previously received from the scheme administrator and which had allegedly been detailed on previous correspondence. A complaint followed and costs were incurred in defending the accusations. Total loss: £22,000
- An organisation failed to enrol a member of staff in the company death in service part of the pension scheme even though it was clear the employee had been paying pension contributions. On their death, a negligence claim followed alleging liability for the amount that should have been paid. Total loss was in excess of £100,000
