In a claim brought by a scheme's independent trustee, the Pensions Ombudsman has held two individual former trustees (the "two trustees") personally liable to reimburse the scheme in respect of almost £200,000 paid from scheme funds to the employer in breach of trust, plus interest and any tax charges arising from the unauthorised payment.
The Ombudsman held that the trustees were not entitled to the benefit of an indemnity under the scheme's rules, as the payment had been made "in deliberate disregard of the interests of the beneficiaries" and the wording of the scheme's indemnity clause provided that the indemnity should not apply in such cases.
The payment related to unallocated funds in the money purchase section of the scheme which were derived from employer contributions in respect of early leavers who had received a refund of contributions (the "early leaver fund"). The scheme also had a defined benefit section which was in deficit. The two trustees paid an amount in respect of the early leaver fund to the employer, which went into insolvent administration not long afterwards. They did so without taking legal advice or informing their co-trustees and despite there being no provision of the scheme rules allowing such a payment. When it emerged that the balance of the early leaver fund was less than the two trustees had been expecting due to the deduction of administrator fees, the two trustees nevertheless paid to the employer the amount which they had originally expected to be available. The two trustees' failure to inform their co-trustees of the payment was particularly key, as at a meeting of all the trustees shortly afterwards the trustees resolved to pay the employer's levy invoice out of scheme funds and allow the employer to repay the scheme in instalments, a decision that might not have been made had all the trustees been aware of the payment already made to the employer from scheme funds.
The two trustees claimed that they had been advised by the scheme administrator that the destination of the early leaver fund was an employer matter and that the trustees were required to pay the early leaver fund to the employer. The scheme administrator denied having given any such advice. The Ombudsman found on the balance of probabilities that no such advice had been given. Notably, the Ombudsman went on to hold that even if such advice had been given, the trustee knowledge and understanding requirements meant that the two trustees should have considered the reasonableness of the advice given and challenged that advice where appropriate. The trustees were under a legal duty to understand their scheme's trust deed and rules. The two trustees should also have considered whether it was necessary to take legal or tax advice.
This case clearly illustrates that a trustee indemnity clause in a scheme's trust deed and rules will not protect trustees against personal liability in all circumstances. In this case the administrator strongly denied having given advice as alleged by the two trustees. However, the determination indicates that even if the Ombudsman had found that such advice had been given, the Ombudsman might still have held the trustees liable on the grounds that it would not have been reasonable in the circumstances for the trustees to rely on the administrator's advice without questioning it or taking legal advice.