The most important powers, for these purposes, are:
(i) the power to wind up the scheme;
(ii) the power to amend the scheme;
(iii) the power to set the employer's contribution; and the
power to dispose of any surplus;
(iv) the power to make discretionary payments (such as ill
health benefits); and
(v) the power to fix the amount of any transfer values which
The employer usually reserves the power to decide whether or
not to allow an employee to
join the scheme in tine first place.
It used to be the case that the employer could also reserve
the right to appoint the professional advisers to the scheme.
This is no longer possible. Section 47 of the Pensions Act
1995 requires the trustees to appoint an auditor and an actuary. If the scheme
has investments, these are regulated by the Financial Services Act 1988 and the
trustees must appoint a separate fund manager. The actuarial appointment must
he given to a named individual, not a firm or company, but a company or firm
can he appointed as auditor and investment manager.
Legal advisers are dealt with slightly differently. The
trustees do not have to appoint solicitors and one firm of solicitors commonly
advises the trustees and the employer. The trustees should appoint their own
solicitors, either using the same firm as the employer and relyng upon the
solicitors to inform them if, there is a conflict of interest; or appoint
another firm altogether.
Whatever the deeds and rules provide for, this balance of
power is shifted in favour of the trustees by the Pensions Act 1995:
(i) Section 67 limits the power of amendment. If there is
even the possibility that accrued rights or entitlements will he affected, then
the power can only be exercised with the trustees' consent
(ii) For some purposes, the trustees also have unilateral
power of amendment, by resolution, whatever the scheme says. An example is to
implement rules requiring equal treatment, between the sexes, relating to the
terms upon which they may become members of the scheme and the manner in which
they are treated as members.
(iii)The previous law allowed the employer, when drafting
the scheme, to set the order of priorities on winding up. This order or
priorities is now dictated, in part, by Section 73. The order is:
(a) benefits derived from additional voluntary
(b) benefits already in payment (excluding pension
(c) pensions clue to other beneficiaries. (Active employees,
for example, or deferred pensioners and their families) including the return of
contributions to members with less than 2 years service and finally
(d) increases to pensions.
If there is still any surplus left over, then all pensions
and prospective pensions must be increased at least in line with inflation or
5%, -whichever is higher; and only then can any surplus be refunded to the
employer (after prior notice has been given to the members).
(iv) the power to make a refund of surplus from an ongoing
scheme to the employer is also limited by the legislation (that is a cash
payment to the employer, not the power to grant a contribution holiday).
The fundamental obligation which the employer owes to the
trustees is to pay employer's contributions and the contributions which the
employer deducts from employees' pay, as employee contributions. It is now a
criminal offence to deduct employee contributions and not to pay them over to
the trustees within 19 days or the end of the month in which they were
The trustees must also draw up a schedule, and attempt to
agree it with the employer, specifying the contributions which the employer
must make, and the timetable when the payments must be made. If the schedule of
contributions is not honoured, the trustees are required under Section 59 to
give notice to OPRA within one month, and to the scheme members within three
Employer trustees wear two hats (as, indeed, do member
trustees or trade union nominees). But it is very clear that when the people
concerned are acting on trust business they must leave their function as
employer at the door. All trustees must act in the best interests of the
beneficiaries and for this reason, whatever the 1aw says about the power to act
by majority trustee decisions are usually taken uuanimouslv and if there is a
split between employer and employee representatives, it is a strong indication
that one side or the other is acting in the sectional interests of the body
which appointed them.
It used to he the case that the employer could exercise some
residual control by virtue of the usual arrangement that the trustees were
appointed, and could he removed by the employer.
The employer's power to appoint the trustees is now
significantly constrained by the obligations teased upon the trustees (not the
employer), under Sections 16 to 21 of the Pensions Act 1995 to appoint member
nominated trustees (or member nominated directors in the case of the trustee
The provisions are extremely complex but to summarise them:
i) Unless the employer opts out, at least one third of the
trustees/directors must he elected by the members of the scheme, with a minimum
of two (one in a scheme with less than 100 members).
ii) The employer can opt out by making "alternative
arrangements". These will only apply if they are approved by the members of the
iii) If the employer makes no proposal, or if a proposal is
not accepted, the trustees have their own power to adapt the statutory regime.
Ultimately, control of the scheme almost inevitably rests with the employer
at least to this extent: it is only in the rarest of cases that the employer's
right to terminate the scheme is constrained by the need to obtain trustee
consent (or is constrained by any provision in the contracts of employment of