The Deputy Pensions Ombudsman ("DPO") held that two former pension scheme trustees who authorised the return of £193,000 to the employer company acted in breach of trust and must reimburse the Scheme, including in respect of any resulting tax charges. As they made the payment in "deliberate disregard" of members' interests, they were not entitled to an indemnity under the Scheme rules. The complaint was dismissed in respect of two other former trustees who were kept ignorant of the payment.
The complaint was brought against the former trustees of the Pilkington's Tiles Pension Scheme, Mr Burrows and Mr Lloyd who were both directors of Pilkington's Tiles Limited (the "Company") and two member-nominated trustees. The Scheme had both defined benefit ("DB") and defined contribution ("DC") sections and in late 2009 was in deficit. At a trustees' meeting in October 2009, it was agreed that excess employer DC contributions in respect of early leavers whose benefits had not vested should be considered an additional DB contribution. These contributions were valued at approximately £20,000 to £30,000. In November 2009, Mr Harper of Capita (the Scheme administrator at the time) emailed Mr Burrows stating that the excess contributions were actually valued at £187,000 (net of Capita's fees). The Company's finance director emailed KPMG (who were acting on the Company's refinancing) to inform him that "we have received confirmation that…we will receive a £187k cash refund of contributions which are not in the Short Term Cash Forecast".
On 24 December 2009, Capita transferred £177,000 to the trustees' bank account in respect of excess contributions. The same day, Messrs Burrows & Lloyd authorised payment of £187,000 to the Company. At a trustees' meeting in January 2010, the trustees agreed to loan the Company over £200,000 to pay the 2008 PPF levy. The minutes did not mention the payment already made. In March 2010, Messrs Burrows & Lloyd authorised the payment of the balance of excess contributions, amounting to nearly £6,000 from the trustees' bank account to the Company. The Company then went into administration in June 2010, following which Bridge Trustees Limited, the complainant, was appointed as the new Scheme trustee.
Scheme rule 5.6 provided that excess contributions 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…"
Trustees were protected by rule 14.20 which indemnified trustees unless there was fraud or "deliberate disregard of the interest of the beneficiaries" by the trustee(s).
Messrs Burrows & Lloyd claimed that they relied on instructions purportedly given by Capita that all of the contributions must be returned to the Company. However, Mr Harper of Capita categorically denied any knowledge of the payment being refunded to the Company or any advice on the subject.
The DPO held that rule 5.6 did not allow payment of the reserve back to the Company and that Capita had not advised on the payment. Even if it had, the trustees could not simply rely on it but should have considered the reasonableness of the advice and challenged it where appropriate (for example where it appeared to contradict the scheme rules) including considering whether they needed to take legal or tax advice regarding the refund and whether it was in the members' best interests.
Whilst it is not a breach of trust for trustees to wish to assist an employer, trustees should consider whether an advancement or loan to the Company is reasonable or prudent. Advancing money to an employer from an underfunded scheme is "high risk" and unlikely to be prudent (as was held in the case of Lawrence Graham Trust Corporation PO determination Q00623).
Regarding the indemnity clause, Messrs Burrows & Lloyd's decision to transfer £187,000 (the amount originally expected) to the Company, rather than the £177,000 actually received from Capita, demonstrated that they were more interested in meeting the Company's commitments rather than protecting members' interests. In the DPO's view, this was a conscious wrongdoing in deliberate disregard of members' interests and as such these trustees were not entitled to an indemnity and were jointly and severally liable for the loss to the Scheme. These trustees were directed to reimburse the Scheme for the excess contributions payments with simple interest as well as meeting any resulting tax charges and late payment charge.
The DPO held that the two other trustees (who were member-nominated) were not party to the breach of trust and so were entitled to the protection of the indemnity.
This decision reinforces the importance of considering whether certain payments are permitted under the scheme rules but more significantly explores the limits of trustee protection under exoneration and indemnity clauses. In particular, trustees should consider the interests of the scheme ahead of other interests and share all relevant information with their fellow trustees.