The Deputy Pensions Ombudsman has held that two trustees were not protected by the exoneration and indemnity provisions in the Scheme Trust Deed and Rules and were personally liable for payments made in breach of trust. The Ombudsman ordered payment of almost £200,000 but, by the time interest and tax charges are added, the damages will be substantially more. The case highlights the personal liability that trustees can face and the need for trustees to carefully consider the protections they have against liability.

This case is a stark illustration of the potential personal liability of pension trustees.

Bridge Trustees Ltd (PO-763): Trustee Liability

The Pilkington's Tiles Pension Scheme ("the Scheme") had both defined benefit (DB) and defined contribution (DC) sections. There were four trustees; Mr Burrows and Mr Lloyd, both of whom were directors of Pilkington's Tiles Limited ("Pilkington"), and Mrs Hirst and Mr Gratrix, who were member-nominated trustees.

Scheme Rules

Under Scheme rule 5.6, excess employer DC contributions, resulting from early leavers whose benefits had not vested, should be held in a general reserve and "applied by the trustees as the principal employer shall from time to time direct to pay the costs and expenses of the scheme and/or to reduce the amount of the contributions which would otherwise be required from the employers…"

The trustees were granted protection by an indemnity clause under Scheme rule 14.20. However this protection did not extend where there was fraud or "deliberate disregard of the interests of the beneficiaries" by the trustees.


In November 2009, Mr Harper of Capita, the administrators of the Scheme, informed Mr Burrows that the Scheme had excess employer DC contributions of £198,647.50. This amount was to be transferred to the Scheme's trustees, net of Capita's fees, leaving a total of £187,191.25. On 24 December 2009, Capita transferred some £177,000 to the trustees of the Scheme and on the same day Mr Burrows and Mr Lloyd authorised payment of £187,191.25 from the trustees' bank account to Pilkington's account.

A trustee meeting was held on 12 January 2010. The trustees agreed to the company's request for a loan of £205,000 to pay the 2008 PPF levy, which it otherwise could not afford. Mr Burrows and Mr Lloyds did not mention the December transfer to the other two trustees.

In March 2010, Mr Burrows and Mr Lloyd authorised further payments representing excess employer contributions from the Scheme to Pilkington's of £5,819.68. Mr Burrows and Mr Lloyd, therefore, had transferred a total of £193,010.93, from the Scheme to Pilkington's, over a three month period.

Pilkington's entered administration in June 2010. Bridge Trustees Ltd were appointed trustees and, subsequently, made a complaint to the Pensions Ombudsman that Mr Burrows and Mr Lloyd contravened rule 5.6 of the Scheme rules and failed to act in the members' best interests.

Mr Burrows and Mr Lloyd admitted that they had authorised the repayment to Pilkington, but claimed that they were advised by Mr Harper of Capita that the excess contributions must be repaid under the rules of the Scheme.

Unusually for a Pensions Ombudsman complaint, an oral hearing was held so that the evidence of Mr Burrows, Mr Lloyd and Mr Harper could be cross-examined.

The Deputy Pensions Ombudsman ("Ombudsman") upheld the complaint against Mr Burrows and Mr Lloyd.

The Ombudsman confirmed that, in no circumstances, could rule 5.6 be interpreted to allow payment from the scheme's general reserve back to Pilkington.

The Ombudsman also found that, on the balance of probabilities, Mr Harper would not have advised Mssrs. Burrows and Lloyd to repay the excess employer contributions to Pilkington. Critical to this conclusion was that Capita provided administration, but not consultancy, services to the trustees. In any event, the Ombudsman found that Mr Burrows and Mr Lloyd could not be excused by simply relying on any such advice; rather, trustees should consider the reasonableness of any advice and challenge it if necessary. Mr Burrows and Mr Lloyd should also have considered seeking legal and tax advice, which they did not.

The Ombudsman concluded that Mr Burrows and Mr Lloyd were in breach of trust in authorising the payment in contravention of the scheme rules.  In addition, they had failed to inform their fellow trustees of the repayment, which was relevant to the decision to make a loan to Pilkington's to pay the PPF levy.  If Mr Gratrix and Mr Hurst had been aware of the repayment, they may have concluded that the loan was not reasonable or prudent.

The Ombudsman concluded that Mr Burrows and Mr Lloyd were more interested in the company's position than protecting the Scheme members' interests.  This was a conscious decision on their part and amounted to a deliberate disregard of the interests of members.  Key to this conclusion was the fact that the initial transfer on 24 December 2009 to Pilkington was more than had been transferred by Capita to the Scheme, which showed that Mr Burrows and Mr Lloyd were more interested in returning the money to the company than the interests of the members. Mr Burrows and Mr Lloyd could not, therefore, enjoy the protection of the indemnity and exoneration clause and were directed to reimburse the scheme for the total excess employer DC contributions payments to the company of £193,010.93 plus interest together with any tax charges and late payment charges.

Clyde & Co Comment

This case is a stark illustration of the potential personal liability of pension trustees.  Mssrs Burrows and Lloyds' liability to account will be substantially more than the sums repaid to the company once the 40% Scheme Sanction Charge (the tax charge levied on unauthorised payments outside of the tax legislation) tax penalties and interest are added.

It also illustrates the dangers of trustees relying solely on indemnity and exoneration clauses for protection.  Trustee liability insurance can provide further protection against personal liability - and will typically cover defence costs as well.

However, whether insurance could have protected Mr Lloyd and Mr Burrows on the specific facts of this case might depend on the precise wording of the policy.  Policies typically exclude actions where there is a personal benefit to the insured in carrying out the wrongful act or if there has been an intentional breach of a provision or law.  The Ombudsman found that there was no evidence of Mr Burrows and Mr Lloyd gaining personally by the repayment.  However, the Ombudsman's finding of a "conscious wrongdoing" and a "deliberate disregard of the interest of the members" is such that any pension trustee insurance policy (and we have no knowledge that there was any such policy) might not respond.

The Ombudsman's decision is available here.