Trustee liabilities

Managing a scheme effectively can be challenging. It can be hard for trustees to ensure everything runs smoothly.

Most trustee boards work well and effectively as long as the rules are followed correctly and they keep within the restrictions of the legislation and scheme documents. The law requires you to appoint certain advisers and advice should always be sought before making complicated decisions.

What is a breach of trust?

It's important to realise, however, that if anything goes wrong, you could be personally liable for any loss which you or, any trustee, cause to the scheme as a result of a breach of trust. Even if you stop being a trustee, you are still liable for the decisions you took when you were a trustee.

A breach of trust happens when:

  • you carry out an act as a trustee which you are not authorised to do under the trust deed and rules (unless agreed by the court or directed by The Pensions Regulator)
  • you fail to do something which you should have done under the trust deed and rules
  • you do not perform one or more of the duties that you have under trust law or pensions legislation

Although rare, a breach of trust could also happen through fraudulent or dishonest behaviour. More commonly, though, breaches of trust happen unintentionally. For example, this could be due simply to an administrative error or oversight.

Ensure the right procedures are in place

To stop either of these from happening, there should be adequate procedures in place for checking that those running the scheme are doing everything correctly. You can also be held responsible for a breach of trust by another trustee if you fail to stop them committing a breach.

If TPR or a court fine you as a result of a breach, you cannot pay the fine out of the scheme's assets unless the court agrees to this. However, the trust deed and rules should contain an indemnity clause which will excuse you from liability except in cases of wilful negligence or wilful misconduct meaning the employer can pay the fine, if you are sued. They may also be able to reimburse you or provide indemnity insurance.

The rules may contain an exoneration clause exonerating you from responsibility for financial loss except in cases of wilful negligence or wilful misconduct. Both of these clauses however, won't cover criminal penalties.

Last updated: 21 Oct 2015

The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London EC3V 0RL.