Role of Trustee in Pension Fund, Financial Management

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Role of Trustee in Pension Fund:

Trustees are people in control of long-term asset allocation of a pension scheme. Whatever benchmark they set will, as we shall see, influence the outcome more than anything else. What pressures are trustees under? The assets in their charge would ideally be sufficient to meet the pension promise without depending on the sponsoring employer for anything more than the current level of contributions. The beneficiaries of the scheme will hope that the maximum return will be made on the assets to have a prospect of improvements in benefits. Trustees usually compromise, and determine that their task is to ‘maximize returns within an acceptable level of risk'. The trouble with this statement is that it is meaningless. Trustees have two risks: one, that their stewardship will place an unbearable burden on the employing sponsor of the scheme; the second, that they will be compared to their peer pension funds, and be subject to scorn and contumely from both their members and the employer if they under perform.

Under the Pensions Act, the trustees should consult the employer while determining their investment strategy. There is otherwise a risk that the trustees will adopt a very high-risk strategy, relying on the strength of the employer to make good any shortfall should anything go wrong. The employer may not be willing, or in any position to underwrite that possibility. One other consequence of the Pensions Act is that the trustees are now clearly distanced from the employer. Unless the members vote otherwise, the trustees must have at least one-third of their number elected by the members. The cosy days when the Maxwell family and its hired hands determined what happened to the Mirror Group Pension Fund are a thing of the past.

 


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