The Pensions Regulator has imposed fines on the trustees of Pakistan International Airlines’ pension scheme (£500 each for failure to provide audited accounts for two years), and on the trustees of six schemes for failure to comply with the content requirements of the Chair’s statement. Potential fines are a frequent concern for trustees: who pays if a trustee receives a fine or penalty for breaching a legislative requirement?

  1. The trustees? Strictly in law trustees are personally liable, so individual trustees may potentially find themselves out of pocket for a fine. It would be wrong to assume that a director of a corporate trustee would automatically have greater protection – trustee directors can still be penalised personally for a trustee company’s failure to comply with certain requirements of legislation. For example, if the trustees of the Pakistan International Airlines pension scheme had been trustee directors, they would still have been personally liable for the fines. However, where trustees or trustee directors have been fined for a legislative offence, it is not always the case that they will be out of pocket, depending on the trustee protections that are in place (see below). In fact, it is normal practice to ensure that there are adequate trustee protections in place to enable trustees to be comfortable in carrying out their daily trusteeship roles in the midst of the dense framework of legal requirements.
  2. The scheme? Trustees cannot be indemnified out of scheme assets in respect of fines or civil penalties, or for insurance which covers these costs – trustees cannot rely on the normal indemnity provisions (either under law or under scheme rules) to cover them in this situation.
  3. Liability insurance? As mentioned above, insurance premiums which cover fines or civil penalties cannot be payable out of scheme assets, but the employer could pay the policy on an insurance policy which covers this form of liability.
  4. The employer? It is not unusual for trustees to have a separate indemnity from the employer alongside an indemnity out of scheme assets, which may cover such costs. Any such indemnity, if available alongside employer paid liability insurance, is usually a safety net for excluded claims and excess costs. It is, however, likely to be restricted – for example, by excluding liability for a trustee’s deliberate wrongdoing.

In short, the recent use of the Pensions Regulator’s powers to fine individual trustees (or trustee directors) for a legislative breach serves as a useful prompt to remind trustees that such liabilities cannot be met by the scheme and that other layers of protection are necessary to ensure that their personal assets are not at risk.

If, as a trustee, you have the benefit of an employer-paid liability insurance policy and/or indemnity, it would be worth reviewing whether fines and civil penalties are covered and whether you are covered once you leave office for a liability arising from a breach that occurred whilst you were a trustee.