What scares Johnny Knoxville?

by Brian Spence   •  
Some of you may have heard of Johnny Knoxville. He has made a career for himself by taking outrageous risks which usually damage his body in spectacular ways. He and his skateboarding pals are part of an MTV show called Jackass where they indulge in these high risk activities for the camera.  There are plenty of video clips documenting his unhealthy appetite for risk, however, despite his reckless risk taking and disregard for his personal welfare I was unable to find one clip of Johnny Knoxville acting as a pension scheme trustee. I found this surprising given the high risk nature of pension trusteeship in the UK today. So maybe I’m exaggerating a little for effect, but only a little. We’ve recently seen the trustees of the Greenup and Thompson Pension Scheme being held personally liable for an unsecured £150,000 loan they made to the Company from scheme assets, which serves to remind us all of the personal nature of the liability associated with performing the role of a pension trustee.  Whilst the highly unusual details of the case might to some degree help reassure trustees that if they stick to the rules they’re unlikely to be personally pursued, how easy is it for lay trustees to remain within what seem to be an ever changing set of rules and guidance? The level of risk associated is reflected in the substantial cost of buying trustees’ indemnity insurance for pension schemes – that’s if you can get cover in the first place.  The cost is a measure of the risk that insurance companies consider trusteeship carries. Given that insurance companies are commercial entities specialising in risk assessment and many insurers simply refuse to offer protection to trustees, why should an individual consider trusteeship to be anything other than a high risk activity? And just why is it so risky? The answers can be found in a look at how pension scheme trusteeship has evolved in practice. Senior staff within organisations have traditionally doubled as pension trustees by periodically donning their trustee hats and holding a trustee meeting. But as trustees are bound to act in the best interests of the members of a pension scheme, and it is well nigh impossible to do that while simultaneously acting in the best interests of shareholders, there is a clear conflict of interest in this arrangement. Changes to company law due to come in to force from 1 October 2008 implementing new provisions of the Companies Act 2006 will also now require non-conflicted directors to formally authorise those who find themselves in a conflicted situation and acting as both a director and a pension scheme trustee is without doubt one of these situations. The 2004 Pensions Act made it a requirement that companies seek nominations from members to act as trustees. Trade unions strongly encouraged their members to become trustees. However, given the unlimited personal liability associated with such a move, it’s really quite surprising that trade unions should recommend that their members take up positions as trustees without providing them with adequate protection. One of the first things any company struggling financially will consider is where it can cut costs – and that often means squeezing its pension contributions. That’s why whenever a company becomes insolvent it is seldom a surprise to discover that it has a badly funded pension scheme with members consequently having their benefits cut. In this scenario, to whom can members turn to seek compensation? The answer is the trustees, who have the responsibility for ensuring that the pension scheme is adequately funded. Trustees are usually indemnified by the sponsoring company in respect of their actions as trustees. Consequently, any claim is most likely to be brought against a trustee when the company is insolvent rendering any employer indemnity meaningless. From a trustee’s point of view, that predicament represents something of a triple whammy: not only will they have lost their job and have had their expected pension reduced, but they also face a potential claim for maladministration of the scheme for which they could be deemed personally liable. The level of trustee knowledge and understanding required as a result of recent legislation means that trustees must reach a level of competence where they are capable of providing an effective challenge to the advice given to them by their professional advisers. That’s why there’s now a trend away from company and member representatives working as trustees and towards the appointment of independent professional trustees. These are usually experienced pension professionals who know and understand the risks associated with pension schemes. For this reason they tend to act, not as individuals, but within an incorporated body where the personal risks associated with trusteeship are limited. Not only does this address many potential areas of conflict and remove the need for additional training but it also enables company directors to focus their attention and efforts on the management of the company, and members on their day to day jobs, without distraction from complex pension trustee issues. As recent publicity surrounding a professional trustee has highlighted even a professional appointment is not without risk. However undertaking a rigorous due diligence process to make a selection which meets the specific needs of the scheme concerned should address potential pitfalls. The business world is increasingly litigious and the various potential risks in trustees taking the wrong decisions are becoming more apparent than ever before. With many member nominated trustees becoming more conscious that they are occupying a position where they are required to take decisions that they are not necessarily fully competent to take, and being more uncomfortable in the need to rely so heavily on the advice from a professional adviser, independent trusteeship seems the obvious solution by reducing the risk through the provision of some protection. ENDS

Further reading

The threat of inflation

by Brendan McLean   •  

Government spending in response to Covid-19

by James Sweetnam   •  

Adding value for the PPF

by Julie-Anne Jones   •  

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