Using a trustee company rather than individual trustees for an occupational pension scheme can involve less bureaucracy because it is generally easier to get deeds executed and the transfer of trust assets is simpler. The directors can also shelter behind the trustee company’s corporate personality.

However, returns must be made to the Companies Registry and there may be less transparency. It is also more difficult to entrench a particular trustee structure with a corporate trustee.

This briefing outlines the main advantages and disadvantages of having a separate trustee company.

UK private sector occupational pension schemes need a trustee, either a group of individual trustees or a trustee company. A trustee company board can be formed of the individuals who would have been trustees, but they would be directors rather than trustees. The advantages and disadvantages of having a corporate trustee are set out below.

We generally suggest that a trustee company is easier to operate and can give some additional protection to individuals on the trustee board.

Advantages

  • The transfer of trust assets is simpler. The legal title to assets and contracts remains with the trustee company if there is a change of director and there is no need to seek to renew contracts or transfer assets.
  • There is less formality involved in a change of a trustee director than in a change of a personal trustee. There is also less need for deeds of appointment or removal so fewer deeds are involved. Fewer notifications are needed – the only requirement is a notification to the Companies Registry within 14 days.
  • The duties and responsibilities of the party appointing and removing trustee company directors (usually the employing company) are clearer than those of individual trustees.
  • Using a trustee company avoids the problem of being unable to have more than four trustees of a trust holding of land under section 34 of the Trustee Act 1925. 
  • Companies usually provide full ?? majority voting by directors. However, the articles can provide for something else – eg weighted voting for directors in some circumstances. The general rule for individual trustees now is that decisions can be made by a majority of the trustees unless the trust deed allows otherwise.
  • It is generally easier to get deeds executed. Once a matter has been approved by the board it usually needs only the signatures of: one director provided a witness attests the signature; two directors; or a director and a secretary. There is no need to involve all the directors.
  • The trustee company’s directors can shelter behind the separate corporate personality of the trustee company, at least in relation to ordinary creditors (eg fund managers, third party contractors, creditors etc) – see further below.
  • There are advantages in terms of the flexibility of the provisions in the Pensions Act 1995.
  • Certain transactions between directors and the company are prohibited by the Companies Acts. If directors of the employer company were also individual trustees, these sections could cause difficulty with some types of transaction between the employer company and the individual trustee, even though in most cases there would be exceptions for trustees of the company pension scheme.
  • Delegation by individual trustees is not generally permitted unless expressly authorised by the trust instrument. However, delegation by companies’ boards of directors (including corporate trustees) is generally permitted and will usually be expressly dealt with under the articles of association, if not elsewhere.
  • Directors’ and officers’ insurance cover may be easier to extend to directors of a subsidiary trustee company.

Disadvantages

  • A separate trustee is needed to give receipts for the proceeds of sale or other capital moneys arising under a trust for sale of land (under section 14 of the Trustee Act 1925 and section 27 of the Law of Property Act 1925).
  • Additional paperwork is involved and it is necessary to submit returns to the Companies Registry. These are not onerous.
  • A trustee company will probably count as a dormant company under the Companies Acts. A dormant company is exempt from the requirement to have audited accounts but shareholders can give a notice requiring the company to obtain an audit of its accounts for a financial year. A dormant company will also not need to appoint auditors. It will, however, still be required to deliver (unaudited) accounts of the company (as opposed to the scheme) to the Registrar of Companies and circulate copies of annual accounts to every member of the company, every holder of the company’s debentures and every person who is entitled to receive notice of general meetings. If the dormant company also qualifies for the small companies regime it will only need to prepare ‘abbreviated accounts’.
  • Under the Companies Acts and the disclosure rules for listed companies, a body corporate controlling the trustee company is deemed to be interested in shares held by the trustee company (even if they are held on trust for the pension scheme). If the trustee company is a subsidiary of one of the employers, this means that the employer (and any other companies having control of the employer) will be treated as being interested in shares held by the trustee company.
  • It may be necessary to check that any exclusion or limitation clauses affecting the trustees’ general liability are expressly applicable to directors of a trustee company.
  • There is perhaps less transparency – individual trustees may be more visible to employees.
  • The ‘usual residential address’ of each director of the trustee company must be included in the details filed at Companies House (provisions in the Companies Act 2006, expected to come into force in October 2009, allow directors to use a service address instead of their ‘usual residential address’ on the company’s register of directors. The director’s residential address will still need to be provided to Companies House but this will be kept on a separate secure register). For individual trustees, the only registration requirement is with the Pensions Registry and there is no obligation to give residential addresses.
  • The maximum civil penalties that the Pensions Regulator can levy are generally greater for trustee companies than for individual trustees.
  • It is harder to entrench a particular trustee structure with a corporate trustee.
  • If one director becomes disqualified from acting as a trustee, the whole trustee company is disqualified until that director leaves the board – so the articles of association should state that a director automatically ceases to hold office if he becomes disqualified.

Director liability

In practice the individuals acting as directors of a trustee company will often consider themselves to be the trustees and may even call themselves this. But, legally, the company is the trustee, not the individuals.

This means that the directors owe the usual fiduciary and statutory duties to the trustee company. But they will not automatically owe any duties to third parties such as creditors or members of the pension scheme. This has been confirmed by case law in Gregson v HAE Trustees (2008) and HR v JAPT (1999). Liabilities to third parties (eg members) can arise in some circumstances (eg knowing assistance in a breach of trust), but generally trustee directors are better protected than individual trustees. This is particularly against contractual claims, which can be significant if (say) investments contracts are involved.

Indemnities and exonerations in trust documents in favour of trustees need to be checked to see that they extend to directors of a trustee company. The Companies Acts also include some limitations on indemnities.