Pension Trustees owe a duty of care to Scheme members and beneficiaries and in some circumstances can be held personally liable for their actions. At a time when there is increased regulatory requirements and scrutiny, Trustees can also find themselves the subject of an investigation which could lead to civil fines and penalties being awarded against them.
A Pension Trustee Liability (PTL) Policy provides a vital external resource for protecting Trustees and reimbursing losses suffered by a Pension Scheme or the Sponsoring Employer following a third party claim alleging a Wrongful Act. This can include breach of trust, negligence, misrepresentation, maladministration etc. Cover can also be provided for the legal and professional fees associated with dealing with an investigation by The Pensions Regulator and any civil fines and penalties imposed against the Trustees. Cover can often include investigations costs in respect of the Information Commissioners Office and can sometimes cover GDPR civil fines and penalties.
It is important to remember that the Policy covers the cost of defending a claim or allegation of a Wrongful Act, no matter how spurious that allegation may be. Therefore, the Trustee does not necessarily have had to have done something wrong in order for the Policy to pay out, someone only has to accuse them of having committed a Wrongful Act.
Not all Policies provide the same coverage and therefore it is important to shop around to ensure that the most comprehensive cover is available at the best terms.
ULP are independent and specialist insurance brokers that are true experts in the PTL field. We offer a bespoke service to help Trustees, Sponsors and Advisers understand the Insurance solutions available and we negotiate hard to ensure that the best coverage options are secured for the best price. We can advise on Policy coverage differences, so that you can make an informed decision as to what best meets your specific requirements.
We offer a ‘free of charge’ service to source and price options from a variety of Insurers, and only if and when insurance cover is taken out will we receive any payment, and that will be a commission paid to us by the Insurer who has issued the Policy.
We will discuss with you how to identify your demands and needs for insurance, or those of the clients you are representing. At your request, we can meet with you either in person or ‘virtually’ to help you understand what is available from the insurance market.
On receipt of a brief Indication Request Form we will seek indicative terms from a range of Insurers in the market, giving you alternatives and choices to consider as well as factoring for budget purposes.
We will consult with you so that the features and benefits of what is being proposed are fully understood. We will appraise the different Insurers’ policy wordings and discuss the available cover options.
If and when you want to firm one or more Indications up into binding Quotations, we will steer you through that process keeping it as simple and streamlined as possible.
Ours is an ‘end to end’ service, so we offer ongoing advice and assistance in the event of a circumstance or claim that needs to be notified to the Insurer.
In order for us to seek indications/offers for you, please complete the Indication Form below is and return it to us. Our service is free of charge, however we will get paid a commission by the Insurer if a Policy is taken out.
Use this Form if assets are still wholly held within the Scheme.
We have compiled a list of frequently asked questions and answers. But if your question is not listed, do call or email us.
The cost varies from Scheme to Scheme and according to the Insurers’ perception of the level of risk they are being asked to take. We frequently find that Employers and Trustees are pleasantly surprised by what the cover costs. We would emphasise that it costs you nothing to find out how much cover might cost.
Pension Trustees have weighty duties or responsibilities to their members and these liabilities do not cease just because a Scheme has been Wound Up. Due to the ‘claims made’ nature of any PTL Policy, it is essential that Run Off cover is purchased to provide long-term protection for Trustees.
Cover includes protection for actual or alleged Wrongful Acts, including but not limited to: Overlooked Beneficiaries, Maladministration, Communication Errors, Investment Risks etc.
Importantly, the Policy provides cover for the potentially expensive legal costs in defending a claim, no matter how spurious the matter may be.
Trustees have a duty of care to their members to ensure that sensitive personal data that they are entrusted with remains safe, and for this reason ICO and GDPR coverage can be a major consideration.
Most (but not all) PTL Policies include cover for the Trustees’ legal costs and professional fees incurred should the ICO commence an investigation against them. For ICO fines and penalties which are indemnifiable in law, there are significant variations in the cover provided by different Insurers.
ULP can provide independent advice as to different Policy cover available from various Insurers.
It is not usually necessary to buy as much cover as the Scheme has in assets, but each scheme will have different requirements. For an average size Scheme around 20% of assets may be a good starting point, but consideration should also be given to the following:
We would recommend that Trustees have as many layers of protection as are available to them.
Both indemnities and exoneration clauses can be of benefit to Trustees, however, as with any sort of contract these clauses need to be very carefully written to ensure that the Trustees have the protection they require. Any indemnity relies on the Sponsoring Employer still being around (i.e. solvent) to honour that indemnity, and in today’s economic climate there are no guarantees.
A PTL Policy provides an external and vital additional layer of protection to the Trustees. Where indemnities or exoneration clauses are in place, the PLT Policy will usually sit in front of any such agreements and will act as the first line of defence. Importantly, a PTL Policy provides cover for the legal costs in defending an allegation, no matter how spurious any allegation is – this is vital cover that may not be provided under an indemnity or exoneration clause.
Depending upon the Policy Wording, a standard Directors’ and Officers’ (D&O) cover may provide an element of cover for Pension Trustees, however there may be problems. The scope of cover may not automatically include all Trustees, there may be specific exclusions and/or a smaller amount of cover (an inner limit) available for the Pension Scheme. Problems may also occur at future renewals if the Policy is renewed on differing conditions.
Most D&O Policies are underwritten on an Aggregate basis, which could result in the Policy limit being eroded by other Insured perils, leaving no cover for the Trustees.
We recommend that Pension Trustees empower themselves to take control of the coverage available to them by arranging a specific PTL Policy.
PTL insurance should be taken out as soon as possible so that protection is available for the unexpected!
If a PTL Policy has never been purchased before, some Insurers may include a retroactive date. This means that the Insurer will not provide cover for work undertaken or decisions made prior to the retroactive date. For this reason, the sooner the policy is taken out for the first time, the earlier retrospective cover will build up.
ULP may be able to assist you in securing cover without a retroactive restriction.
Both indemnities and exoneration clauses can be of benefit to Trustees. However, as with any sort of contract these clauses need to be very carefully written and finely tuned to ensure that the Trustees have the protection they require. There could be an intention to provide an indemnity or exoneration but the words on the page may not reflect that, leaving the Trustees high and dry.
Any indemnity relies on the Sponsoring Employer still being around (i.e. solvent) to honour that indemnity. In today’s climate, that is not a certainty.
A PTL policy provides an external and vital additional layer of protection to the Trustees. Where indemnities or exoneration clauses are in place the PLT Policy will usually sit in front of any such agreements and will act as the first line of defence.
Either party can buy cover. Normally Trustees prefer the Employer to buy the Policy as this implies that the Employer will be prepared to pay the premium! Alternatively, the Trustees can buy cover themselves and pay the premium from Scheme Assets, providing the Trust Deeds allow this.
Even if the Sponsoring Employer is prepared to pay the premium, we would suggest that the Trustees take ownership of the PTL process. This will enable them to ensure that the coverage continually meets their requirements. It is also a good idea to ensure that the Trusts Deeds do allow for Premiums to be paid from the Scheme Assets, in case there is a change in circumstances in the future.