Part of the flurry of legislation that has hit the statute books before May's General Election, is the Small Business, Enterprise and Employment Act 2015 ('SBEE Act') which is aimed at supporting small businesses and, amongst other things, promoting the UK as being a 'trusted' and 'fair' place to do business. The SBEE Act includes a ban on corporates acting as directors of UK companies. However, the Department for Business and Innovation and Skills ('BIS') is consulting on possible exemptions to this ban which includes one covering pension funds, where BIS has already said, comfortingly, that it considers an exemption should apply.
Many pension schemes already have corporate trustees in place, for the protection of its corporate directors (as it is generally the company acting as trustee which assumes liability for trustee actions as opposed to its individual directors) and the ease of administration (for example, the paperwork for dealing with appointing and removing trustee directors is simply forms filed at Companies House as opposed to formal deeds that have to be drawn up). In turn, those corporate trustees also often have a corporate (commonly a professional trustee) acting as a co-trustee director of that trustee.
With the increasing complexities involved with running pension schemes which trustees are responsible for, it is common to appoint a professional trustee in its corporate form to the trustee board, bringing with it often much needed experience and expertise in managing these complexities. It is also useful to have independent professional trustee directors on board where there may be conflicts of interest for trustee directors who are also officers of the employer.
It is common for professional trustees to operate through their own corporate, allowing flexibility and continuity, so if one director is not available (e.g. for an urgent trustee meeting) then another director can step in. Being able to adopt the corporate mantle also means that professional trustees can attract quality and expertise in the individuals they recruit as their directors, which in turn can benefit the pension schemes to which those trustees are appointed. As it is already common practice to have a professional trustee company appointed as a director of a corporate trustee, a potential ban on having corporates as directors would cause significant unravelling of those arrangements. Though there is a transitional period proposed (1 year) to allow time to do that and the Secretary of State will be required to review the ban every 5 years, it will not, on the face of it, counteract the possible long term damage to pension schemes which might result from the ban.
At the moment, it is anticipated that the ban on corporate directors provided for in the SBEE Act will come into force from October, with the regulations containing the exemptions coming into force at the same time. We will monitor with interest the extent to which the pension scheme context is adequately catered for in the exceptions – if it is not, it could unhelpfully unsettle and inhibit the many pension scheme scenarios in which corporate appointments to corporate trustees currently operate so successfully, and cause much unnecessary work, cost and risk of a lack of expertise in the process.