Pension scheme trustees risk being held personally liable for scheme failures from next week unless measures to protect them are urgently reviewed.
That's the warning from pensions lawyers who claim that scheme trustees could be exposed to unnecessary liabilities unless they take account of the restrictions contained in the new Companies Act 2006.
In essence, the Act casts doubt on the extent to which exonerations and indemnities - designed to protect pension trustees from personal liability and any costs they may incur - will continue to work where a corporate trustee is involved in the scheme.
The Act will only impact on pension schemes that have one or more companies as trustees. But this is not uncommon as schemes have increasingly looked to use corporate trustees as one way of protecting those carrying out day-to-day trusteeship responsibilities.
"In these circumstances, the Act could, at worst, wipe out any clauses in a pension scheme that provide valuable protection from personal liability for those carrying out trusteeship roles," said Jayne Reilly, a pensions specialist at Hammonds in Birmingham. "This could leave some trustee boards with no protection at all in the event of a challenge by members."
To combat the exposure caused by the changes in legislation employers and trustees are being advised to complete a damage limitation review.
Ms Reilly continued: "We are strongly advising pension scheme trustees to review their scheme protection to ensure that it will still work properly once the relevant parts of the Act come into force next week.
"In many cases some redrafting will be needed. But ensuring that trustees are properly protected is essential for businesses that want to hold on to, and attract, quality trustees to oversee their schemes."
Hammonds says It is standard practice for pension trustees to be protected by the employer against any liabilities they incur through acting as trustees of the scheme.
And recent legislation now requires schemes to appoint "member nominated trustees" who have been selected by pension scheme members. But attracting suitable candidates is not always easy given the scrutiny that trustee positions currently face.
"The majority of pension scheme trustees are unpaid volunteers who work on the basis that employers provide them with the best protection possible from being held personally liable when things go wrong.
"Unless pension schemes can demonstrate this, attracting trustees - one of their most valuable assets - could become even more of an uphill battle."
