THE DEFINITIVE GUIDE TO THE TRUSTEE’S ROLE AND OBLIGATIONS ‘The most comprehensive yet readable review of this subject on the market.’ BENEFITS AND COMPENSATION INTERNATIONAL the PENSION TRUSTEE’S handbook 5th edition ROBIN ELLISON Endorsed by the Pensions Management Institute The Pensions Management Institute RAISING STANDARDS FOR PENSION PROFESSIONALS AND TRUSTEES Professional membership Qualifications for staff at all levels Study support Conferences and seminars Trustee development Publications On line pensions jobs www.pensions-pmi.org.uk The Pensions Trustee’s Handbook 5th edition The new 5th edition of Robin Ellison’s definitive guide to the trustee’s role and obligations has been fully updated to take into account all changes to the law and regulations since the last edition It is fully up to date as at autumn 2006 Crystal clear and jargon-free, it is designed to meet your needs as a trustee and to answer all your questions in a no-nonsense, practical manner It is helpfully divided into three parts – I Trusteeship in Law, II Trusteeship in Practice and III The Bluffer’s Guide, an invaluable source of information Both the Finance Act 2004 and the Pensions Act 2004 significantly increased the responsibilities and liabilities of trustees There has never been a greater need for a book that is both expert and accessible This book: • focuses on what the rules mean in practice • teaches the trustee to anticipate problems and how to solve them • contains no legalese and no jargon • ends each chapter with summary of points to remember • includes case studies, checklists and useful addresses PRAISE FOR THE PENSIONS TRUSTEE’S HANDBOOK ‘A very useful book – one for the shelves of all pension trustees.’ PERSONNEL TODAY ‘Written in a beautifully direct style… it clearly communicates what UK trustees need to know in order to a good job… the most comprehensive yet readable review of this subject on the market.’ BENEFITS AND COMPENSATION INTERNATIONAL ‘Scores very highly… mandatory education for your trustee board.’ PENSIONS TODAY ‘Very straightforward and accessible… this is a useful and practical primer for trustees.’ PENSIONS NEWS Robin Ellison is Head of Strategic Development, Pensions at leading law firm Pinsent Masons He is a highly experienced speaker and writer, with many years’ experience of lecturing to pension fund trustees and sitting on boards of trustees, as well as acting as a solicitor He is the author of many books including Sweet & Maxwell’s Pensions Law loose leaf service Robin Ellison is currently Chairman of the NAPF www.pensions-pmi.org.uk NEW TRUSTEE DEVELOPMENTS FROM THE PMI New PMI Awards in Pension Trusteeship PMI is very pleased to be able to offer two new Awards accredited by the Qualifications & Curriculum Authority The Pensions Management Institute PMI Trustee Group Seminars - putting trustees on track since 1998 (QCA) which will be of value to trustees and others interested in trusteeship These consistently successful one day seminars are organised twice a year by the The Pensions Regulator has developed PMI Trustee Group Held in June and an e-learning programme to meet its November, these events help trustees to Trustee Knowledge and Understanding focus on areas of risk and provide them with requirements, which provides a useful the information and guidance they need in resource for those preparing for the order to ensure that their company’s scheme Awards is running effectively To view the Awards titles and unit structure please visit the PMI website at www.pensions-pmi.org.uk/Trustees/ APT/index.asp Trustees at all levels of experience, be they company or member nominated, and those charged with the responsibility of organising and managing trustee boards should definitely not miss out For further details please contact For further details please contact Gillian King on Samantha Gaffney on gking@pensions-pmi.org.uk sgaffney@pensions-pmi.org.uk or phone 020 7392 7401 or phone 020 7392 7425 www.pensions-pmi.org.uk PMI News revamped for trustee readers The Pensions Management Institute PMI has recently amalgamated two publications, PMI News and PMI Trustee Group News Over the last 10 years, the pensions world has radically changed and the level of technical content in both publications has increased considerably We see this opportunity to offer a Independent Pension Trustee Group (IPTG) combined publication covering technical Independent Pension Trustees have and topical pension issues as extremely an increasingly important function beneficial to both pensions professionals with many of them acting as chairs of and trustees trustee boards and the link between the board and the employer For further details please contact Holly Sheridan on Under hsheridan@pensions-pmi.org.uk independent trustees have joined or phone 020 7392 7419 If you are a PMI member please visit www.pensioncareers.co.uk to download the latest issue the auspices of PMI, together to form a self-governing group Members sign up to a Comprehensive Code of Guidance and are then part of a network which offers discussion forums, newsletters and support For further details please contact Gillian King on gking@pensions-pmi.org.uk or visit www.pensions-pmi.org.uk The Pensions Management Institute (PMI) Penny Green, President, The Pensions Management Institute The Pensions Management Institute (PMI) was one of the first organisations to recognise that pensions trustees needed greater knowledge and support in order to fulfil their legal and fiduciary responsibilities In 1993 PMI introduced the Trustee Certificate of Essential Pensions Knowledge which quickly became the benchmark for trustees to obtain in order to give themselves insight and confidence that they were acting in the best possible interests of their pension scheme's members More than 2,400 trustees around the UK have now passed the Certificate This Certificate has evolved in line with regulatory and best practice changes over the past 13 years and has now been replaced by two separate Awards in Pension Trusteeship – one purely Defined Contribution (DC) based and one that is both DC and Defined Benefit (DB) These have been developed in line with the Pensions Regulator's Trustee Knowledge and Understanding (TKU) requirements and, we believe, offer the best possible independent assessment of a trustee’s knowledge Even before Paul Myners made his recommendations about trustees needing to improve their levels of understanding, PMI had established the PMI Trustee Group offering regular newsletters and two annual seminars with leading pensions practitioners PMI is now developing Trusteeweb as an even more effective communication forum for trustees to keep in contact with changes in legislation and exchange ideas on problems and solutions More information on trustee support from the PMI is available from our website www.pensionspmi.org.uk As you can see therefore, PMI has been a leading crusader in the campaign to assist pension trustees, at all levels, come to terms with the growing complexities of the task in hand We are delighted therefore to lend our support and endorsement to this new 5th edition of ‘The Pension Trustee‘s Handbook’ which Robin Ellison has produced in his usual clear and concise fashion In an industry populated by ‘experts’ who actually make pension issues more difficult for the man in the street to comprehend, Robin has justly earned a reputation for clarity, vision and accessibility PMI looks forward to the 5th edition becoming even more popular with trustee readers than its predecessors THE PENSION TRUSTEE’S HANDBOOK 5th edition The definitive guide to the trustee’s role and obligations Robin Ellison 5th edition published by Thorogood Publishing Ltd 2007 10-12 Rivington Street London EC2A 3DU Telephone: 020 7749 4748 Fax: 020 7729 6110 Email: info@thorogoodpublishing.co.uk Web: www.thorogoodpublishing.co.uk Advertising sales negotiated by Petersham Publishing Ltd Petersham House 57A Hatton Garden London EC1N 8JG © Robin Ellison 2007 All rights reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, photocopying, recording or otherwise, without the prior permission of the publisher This book is sold subject to the condition that it shall not, by way of trade or otherwise, be lent, resold, hired out or otherwise circulated without the publisher’s prior consent in any form of binding or cover other than in which it is published and without a similar condition including this condition being imposed upon the subsequent purchaser No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the author or publisher A catalogue record for this book is available from the British Library ISBN 85418 410 978-185418410-8 Book typeset and cover designed in the UK by Driftdesign Printed in the UK by Ashford Colour Press Ltd OPPORTUNITY FAVOURS THE PREPARED MIND BlackRock is a premier provider of global investment management, risk management and advisory services to institutional and retail clients around the world We bring our clients a compelling combination of award-winning capabilities and investment experience Uniting some of the brightest talent in the market place, we believe that we are uniquely positioned to generate exceptional performance and deliver innovative investment solutions tailored to the needs of our diverse client base By leveraging our award-winning expertise, we are able to provide private and public sector pension schemes with a holistic investment approach suited to their specific requirements Put our proven track record, innovative technology and investment insight to work for you: visit blackrock.co.uk or contact Honor Taylor on 020 7743 2424 Issued by BlackRock Investment Management (UK) Limited (authorised and regulated by the Financial Services Authority), a subsidiary of BlackRock, Inc Registered office: 33 King William Street, London EC4R 9AS Registered in England No 2020394 For your protection, telephone calls are usually recorded BlackRock is a trading name of BlackRock Investment Management (UK) Limited Reviewing the Employer’s Covenant Chantrey Vellacott DFK The Pensions Regulator requires trustees to perform a regular review of the financial strength of the sponsoring employer This is referred to as an Employer Covenant Review The main triggers for an employer covenant review are listed below: Meeting trustee knowledge and understanding requirements The Regulator requires trustees to have a knowledge and understanding of the nature and strength of the employer’s covenant and the potential risks to the scheme Assessing the impact of ‘Events’ The Regulator defines Events as ‘all transactions, acts or failures to act, and in some cases circumstances which effect a company’ Trustees need to assess the impact of Events on the employer’s covenant Informing the technical provisions The Regulator requires that trustees take account of the employer’s covenant when negotiating the technical provisions Negotiation of the recovery plan Where an actuarial valuation reveals a funding deficit (i.e a shortfall in assets compared to the funding target), the trustees and employer are required to agree a recovery plan to bring the scheme up to the target level of funding Trustees need to take account of likely future cashflows generated by the employer and on alternative ways of protecting the scheme Dealing with an insolvent employer There will be occasions when the size of the pension deficit combined with the employer’s non-pension liabilities mean that there is no realistic prospect of the liabilities ever being repaid from future cashflows Whenever trustees are concerned that the employer may be insolvent, they should review the employer’s financial position Chantrey Vellacott DFK has considerable experience of assisting trustees fulfil their obligations in all these areas We adopt a scheme specific approach to each assignment, matching the scope of the review to the needs of the trustees This enables us to provide a very cost effective service THE PENSION TRUSTEE’S HANDBOOK 5th ed · 343 344 · THE PENSION TRUSTEE’S HANDBOOK 5th ed THE PENSION TRUSTEE’S HANDBOOK 5th ed · 345 346 · THE PENSION TRUSTEE’S HANDBOOK 5th ed THE PENSION TRUSTEE’S HANDBOOK 5th ed · 347 348 · THE PENSION TRUSTEE’S HANDBOOK 5th ed THE PENSION TRUSTEE’S HANDBOOK 5th ed · 351 INDEX OF ADVERTISERS ABN Amro Mellon GSS 10-12 Aegon Trustee Solutions 94 Aon Consulting Ltd 134 Aries Pensions & Insurance Systems Ltd xx Artemis Investment Management Ltd xxxii-xxxiv AXA Investment Managers 152 Barclays Global Investors Ltd 131-133 BDO Stoy Hayward Investment Managers .160 Blackrock vii Capital Cranfield Trustees .183 Chantrey Vellacott DFK LLP viii-ix Combined Pension Forecasts xxvi-xxix Cobbetts LLP .16 DBC Pension Services Ltd 86 DIAM International 353-354, IBC Edis Partnerships 61-64 EIMSA 106 Euronext-liffe xxiv GAM Ltd 71 Gazelle xii, 100-105 Grant Thornton .xxii Heath Lambert Consulting .19 Hillier Hopkins LLP 222-225 Horwath Clark Whitehill LLP 115 HSBC Actuaries and Consultants Ltd .121 Irwin Mitchell Solicitors 176 Jardine Lloyd Thompson / Independent Trustees Services Ltd 136-137 352 · THE PENSION TRUSTEE’S HANDBOOK 5th ed KMPG LLP (UK) 48-50, OBC Man Investments Ltd 165-168 MNPA Ltd .xiv, 91-93 Morgan Stanley Investment Management .184-185 Morley Fund Management .25, 28-30 Occupational Pension Defence Union Ltd / Trustee Risk Management Ltd 116, 122, 130 Pacific Alternative Asset Management Company xxx-xxxi Partnership Incorporations Ltd 192 Paymaster 23 Penfida Partners LLP 158-159 Pensions Management Institute IFC, ii-iv Pictet Asset Management Ltd xvi Pitmans Solicitors .16, 106 Pointon York Sipp Solutions Ltd 196 Profund Solutions xviii Russell Investments Group .72 Sacker & Partners 83-85 Scottish Life 14-15 Scottish Widows Investment Partnership Skandia Life Assurance Company Ltd .234 Societe Generale Asset Management UK 221 The GAAPS Group 186 The Gate Worldwide / Insight Investment x, 138, 146-148 The Pensions Regulator 228 UBSi Group 207-211 World Gold Council 3-6 Zurich Assurance Ltd 226 A quick overview to the Japanese Market DIAM – DLIBJ Asset Management Ltd A typical risk aversion attitude has been observed in Japan’s stock markets recently Not only foreign investors, but also retail investors in Japan have been selling the stocks as a result of ‘flight to quality’ tendency due to the nervous situation in the Middle East It is clear that less liquid stocks have been the deepest hit, such as the stocks listed in Mothers and Hercules However, less risky stocks such as food and pharmaceutical large cap stocks have been also suffering To a much lesser extent, some investors are also nervous about the results coming from high-tech U.S companies and also the outlook for the U.S monetary policy The Japanese domestic issues are hardly affecting the market The economy still follows a positive trend The outlook for Japan’s monetary policy remains the same (no aggressive monetary tightening expected) JPY has been depreciating, which should have a positive impact on the overall stock market The North Korean situation is probably something unique to Japan, as North Korea is located next to Japan Although North Korea has shot several missiles towards Japan (they landed in the sea between Japan and Russia), we believe that North Korea’s attitude is more to with a demonstration to get more attention from the world, especially from the U.S The U.S has been refusing to negotiate with North Korea for a long time and it seems like North Korea definitely needs the U.S to negotiate with to make sure of its survival as an independent country That may lead to a better compromise in the assistance area especially for food too (North Korea is suffering from famine) For the time being, the investors are watching the oil price It is difficult to guess what comes next as the situation will be very much depending on the geopolitical issues However, the main scenario remains the same In our opinion, although the economic fundamentals in Japan will continue to be very good, it will be difficult for the market to break through the peak of the market we saw in April The market will fluctuate within a range for the time being, triggered by the outlook for the geopolitical issues and the U.S monetary policy The current level is, however, close to the bottom of the range for this year September 2006 If you would like to receive more information please contact: laura.pdf@diami.co.uk © 2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative All rights reserved Time is drifting away How you feel about your pension scheme and your advisors? The role and responsibilities of Trustees has changed significantly through the Pensions Act 2004 and new regulations Fundamental change is underway within many pension schemes KPMG’s forward thinking approach can offer robust, tailored and practical strategies to help enable Trustees to respond Contact Andrew Cawley on 0161 246 4073 or e-mail andrew.cawley@kpmg.co.uk ... their private pension and their State Pension forecast together This provides them with an estimate of the income they may expect to receive at retirement from these two vital components of their... HMRC 203 The Pensions Registry 204 TPAS – the pensions advisory service 204 The Pensions Ombudsman .205 The DWP – The Department of Work and Pensions 205 Financial... amount of weekly State Pension the customer may get at State Pension Age, to the date of the forecast • The amount of weekly State Pension the customer may get at State Pension Age, making assumptions