As the management and governance of pension schemes continues to increase in complexity and risk both sponsoring employers and trustees of pension schemes are increasingly looking towards appointing professional advisers to bring knowledge, experience, and expertise to the governance and management of their pension schemes in an effort to reduce risk and achieve cost efficiencies.
It is important for trustees and the sponsoring employer (who ultimately may be footing the bill) to understand the nature of the relationship between them and the advisers they decide to appoint and to be prepared to question them (and the agreements governing the relationship) critically.
Pension Scheme Administrators
Many sponsoring employers and trustees appoint pension administrators and consultants to assist in relation to their pension schemes. The written agreements documenting such appointments should be reviewed.
Leaving aside the actual services to be provided by the administrator or consultant and the fees for doing so (which the trustees and sponsoring employer will need to be satisfied with) the key issues you must consider are:
- Who should be party to the agreement?
- What should the obligations and duties on the parties be?
- Who should be liable for what and what is a reasonable limit?
- How will conflicts, complaints and data protection be dealt with?
- Who controls the amendment of the agreement?
- Can the service provider get someone else to provide the service?
- How will the relationship be terminated?
Professional Trustees
Many sponsoring employers appoint professional or independent trustees. This is often under a service agreement or letter of engagement. Many of the issues outlined above in relation to administration agreements will also arise in this context. It is imperative that you understand the effect of the key provisions of such documents and the relevant provisions of the pension scheme. Particular consideration needs to be given to the charging clause and indemnity and exoneration provisions under the scheme’s governing trust documentation and how these interact with the service agreement appointing the professional trustee. If such written agreements are not already in place this should be rectified.