In February, we reported on the Merchant Navy case where the High Court confirmed that trustees could take into account the interests of employers as long as their decision furthered the primary purpose of the scheme (which was to secure the promised benefits for the members). A recent decision of the Deputy Pensions Ombudsman (DPO) highlights what could happen where the trustees go too far in favouring the interests of the employer. In the Pilkington Tiles decision, the DPO found two trustees personally liable for payments made to the employer and directed them to repay to the scheme over £190,000 (as well as any tax liabilities which may arise).
The sums in dispute in Pilkington Tiles were excess DC contributions relating to early leavers who had taken a refund of their contributions (the scheme had both DC and DB sections) which two of the trustees decided to repay to the employer. There was nothing in the scheme rules allowing the return of these contributions to the employer and the DPO’s view was that they should have been held in the DC section to cover administrative costs or reduce future employer contributions (but not to cross-subsidise the DB section). The two trustees made the payment to the employer in breach of the provisions of the trust without the knowledge or consent of their co-trustees. The DPO found they were influenced solely by the financial position of the employer and did not consider the interests of the members at all.
The scheme rules included a provision entitling trustees to be indemnified by the employer in respect of liabilities incurred by them in the performance of their trustee duties except where they had acted fraudulently, in bad faith, or in deliberate disregard of the interests of the beneficiaries. The DPO found that they had acted in deliberate disregard of the interests of the members and so were not protected by the indemnity under the scheme rules.
From October 2015, only those with less than 30 days’ pensionable service in a DC scheme will be entitled to contribution refunds. This means that large bonus funds such as the one in this case are much less likely to build up in future.