Commentary / Practical Considerations
- In this case TPR appointed Dalriada as independent trustee.
- TPR acted as they held that the previous trustees showed a lack of knowledge and understanding and due to governance failures.
- The claim included that the conversion of one scheme into another (being Ploutos Pension Trust ('PPT') into Granita Wealth Pension Scheme ('GWPS') was an attempt to escape a 40 per cent deregistration charge.
- This is a textbook example of failures in trustee knowledge and skill leading to governance failings, breaches of the law and poor outcomes for members.
- This case shows that TPR will take the view (rightly) that If Trustees give assurances and do not deliver on them then they will be prepared to act.
Case summary
(i) Facts and background:
- The previous trustees had provide assurances that they would remedy governance failings but did not do so
- Allegations included that the conversion of PPT to GWPS was an attempt to escape a 40 per cent deregistration charge.
(ii) Summary of decision: The Panel appointed an independent trustee on three grounds:
- The previous trustees lacked sufficient knowledge and understanding
- to secure the scheme's assets
- it was in the interests of scheme members generally
(iii) Key factors in the decision: In reaching its conclusion, the Determinations Panel noted that:
- the previous Trustee assurances caused a delay to the governance issues actually being addressed
- there was an apparent unwillingness or inability to address the issues identified which demonstrated systemic failings.
(iv) Key legal principles:
- Trustees should have 'conversant' knowledge and understanding of both their Scheme and the relevant law/duties. This includes:
- key documents and how the Scheme is run
- an understanding of pensions law and relevant legislation, trusts law
- their duties as trustees under trusts law.
(v) Practical considerations:
- Any change in a scheme’s status, administrator, trustee, sponsoring employer of a trustee etc. should comply with the relevant legislation.
- Trustees should carry out sufficient due diligence before transfers, including advice to comply with section 36 Pensions Act 1995.
Analysis
PPT is a DC occupational pension scheme established in November 2014 with a corporate trustee Knight Gray Limited. The trustee was dissolved two years after it was appointed but TPR did not receive any notification to this effect. The scheme’s subsequent trustee was KnightG Limited which was also run by the same individual as Knight Gray Ltd.
PPT’s scheme administrator was deregistered as a pension administrator by HMRC and was later dissolved by the Registrar of Companies, but this was never notified to TPR. Additionally the outstanding charge of 40 percent on scheme assets valued at £959,127.45 issued by HMRC on de-registration was never paid.
Following this deregistration there was a purported bulk transfer of members and their assets to GWPS. The transfer deed contained the words: 'The Trustees and administrators of Ganita Wealth Pension Scheme do not, and will not, accept any liability from the previous administration of the scheme.' There was no evidence provided that member consent had been obtained, or that there had been compliance with the specific statutory conditions for a bulk transfer without consent. The deed failed to cite the correct powers under the scheme’s Trust, Deed and Rules, for either PPT’s transfer out or GWPS’s receipt of the transfer, and failed to explain how it was possible to transfer all assets and members but to exclude liability for PPT’s previous administration.
TPR’s Case Team suspected that this purported transfer was to avoid the deregistration charge. GWPS itself was established in December 2016 and appeared to have no active members nor assets. Furthermore there was no employer, trustee or scheme administrator listed on TPR’s records for this scheme.
The situation escalated to the extent that TPR wasn’t certain who the current trustees of either schemes were, and in any case any of the entities purporting to act as trustees lacked sufficient knowledge and understanding for the role. Significantly on the advice of an individual connected to PPT, a transfer of £33,700 was made from GWPS to the sponsoring employer of the GWPS trustee, without obtaining legal advice (in itself a breach of section 36 of the Pensions Act 1995). Furthermore the purported director of GWPS’s trustee was unable to answer even basic questions about the scheme, or evidence any active or effective trusteeship.
TPR was satisfied that it was reasonable to appoint an independent trustee (Dalriada Trustees Limited) to both schemes as follows:
- PPT – pursuant to s7(3)(a)-(d)
- GWPS – pursuant to s7(3)(a), (c) and (d)
For both schemes TPR also noted the significant period of time over which these failures occurred as well as lack of engagement with TPR which 'demonstrated systemic failures' justifying the appointment of an independent trustee. TPR emphasised the need for trustees to understand their common law duties under trusts law, which in a pensions context translated to promoting the members’ financial interests as beneficiaries under a trust. GWPS had breached its duties by transferring £33,700 thereby preferring the financial interests of third parties to its own members. Accordingly TPR made various ancillary orders under sections 8(4)(b), 8(1)(b), 8(2), and 9 Pensions Act 1995.
Key words
Trustee knowledge and understanding/skill appointment of an independent trustee, section 7 of the Pensions Act 1995, governance failures
Date
10 June 2020 (Revised on 5 August 2020)
PA04 procedure & reference
Standard procedure (s 96(2)(d)), C59291233/1