Can you put a price on trust? And how far does trustee protection go…

£193,010.93 plus interest is the sum that the Pensions Ombudsman (PO) has ordered two trustees to repay to their scheme’s fund, following an application by Bridge Trustees (appointed when the sponsoring employer went into administration). The sum reflects the amount that the trustees had taken from the scheme’s reserve (deriving from excess employer contributions in respect of members whose benefits hadn’t vested) and paid over to the employer. This payment was held to be in breach of the relevant scheme rule, which allowed the reserve to be used to pay costs and expenses of the scheme or to reduce employer contributions that were otherwise due.

Although the PO found that wanting to help an employer wasn’t in itself a breach of trust, it held that the trustees’ actions in this case did constitute a breach of trust. It found that in view of the scheme’s funding level and the financial circumstances of the sponsoring employer, their actions were neither prudent nor reasonable. The trustees had taken no advice before making the payment, had not considered whether it was permitted under the scheme rules, and did not determine whether making the payment was in the best interests of members. In short, they had torn up the putative “Trustees’ Rulebook” and, in consequence, were not covered by the scheme’s exoneration and indemnity provision, which excluded “deliberate disregard of the interests of beneficiaries”.

This case provides a concrete example that can be cited in answer to that perennial trustee question: “What do the scheme’s trustee protections actually cover (or not cover)?” However, it seems unlikely that most scenarios in which the indemnity/exclusions have to be actively considered will feature such egregious conduct from trustees, and so the case provides a vicarious thrill of horror (the reality of joint and several liability writ very large) rather than a really meaningful benchmark of trustee conduct.