Trustees are responsible for managing the assets of a pension scheme and ensuring that it is administered in the best interests of the scheme beneficiaries and ensuring that members' benefits are secure. As such, they are subject to a number of duties to act with care and skill in the exercise of their functions.

Since its creation back in 2005, the Pensions Regulator has issued guidance for trustees which outlines some of the wide-ranging responsibilities placed on pension scheme trustees and, in this blog, we set out a reminder of a number of those key trustee duties; how they can be discharged; and the potential consequences of any breach.



How to discharge

Duty to act in the best interests of the scheme beneficiaries

The duty to act in the best interests of the scheme beneficiaries is perhaps the most fundamental duty that applies to pensions trustees. This duty requires trustees to act in a way that benefits the scheme beneficiaries, taking into account their interests as a whole.

A 'beneficiary' is anyone who is entitled to, or who might receive, a benefit from the scheme, now or in the future so could be, for example, members of the scheme, prospective members of the scheme or dependants of members.

Trustees should make decisions that are based on the best interests of all of the beneficiaries of the scheme and should act impartially. This does not necessarily mean that all classes of beneficiary must be treated in the same way but rather that trustees need to strike a balance so as to give appropriate weight to the interests of each class when making decisions about the scheme.

Duty to act with prudence

The duty to act with prudence means that trustees must exercise the same standard of care and skill that a reasonably prudent person would apply if they were managing their own affairs. In practical terms, this means that trustees must be careful, diligent, and act in good faith when making decisions on behalf of the scheme.

This duty can be particularly relevant to dealing with a scheme's investments and the Pensions Regulator's guidance (linked above) includes a section on investing scheme assets. Trustees should ensure that they have a good understanding of the risks associated with different investments and strategies. They should also keep up-to-date with developments in the market and seek advice from professionals where necessary. Trustees should also keep accurate records of their decisions and the reasons behind them.

Duty to act in accordance with scheme documentation and the terms of the trust

The duty to act in accordance with the scheme documentation means that trustees must follow the rules set out in the scheme's trust deed and rules, as well as any other legal requirements that apply.

Trustees should familiarise themselves with the scheme documentation and ensure that they understand its contents. They should also keep up-to-date with any changes in the law that may impact the scheme. Trustees should also seek legal advice where necessary to ensure that they are acting in accordance with their duties.

Duty to invest

The duty to invest requires trustees to invest the assets of the scheme in a way that is likely to achieve the best possible return for the level of risk that is acceptable for the scheme. This duty is closely linked to the duty to act with prudence.

Trustees should have a clear investment strategy that is aligned with the objectives of the scheme. They should also regularly review and monitor the performance of the investments and take appropriate action where necessary.

The Pensions Regulator's guidance encourages trustees to work collaboratively with their scheme’s employer on the assumption that better outcomes will generally be achieved if trustees and employers work together to develop an understanding of investment and risk issues.

As outlined in our recent blog, Trustees should also consider the environmental, social, and governance (ESG) factors when making investment decisions.

Duty to take advice on technical matters and matters of uncertainty

The duty to take advice on technical matters and matters of uncertainty requires trustees to seek professional advice where they are uncertain about a decision or require specialist knowledge. This duty is particularly important when making investment decisions or dealing with decision that could be challenged, as the risks can be high.

The Pensions Act 1995 requires trustees to appoint certain 'professional advisers' to carry out specific tasks in relation to the scheme (such as, for example, a scheme actuary and auditor). Trustees can only rely on advice from professional advisers who have been properly appointed.

Trustees should make sure they understand what help and advice they can expect from different advisers – in particular, the type of advice they can provide and the limits of that advice. Trustees should also ensure that they understand the advice that they receive and can make informed decisions based on it.

Consequences of breach

A breach of trust may be unintentional (for example, because of an administrative error), or it could be caused by negligence or through fraudulent and dishonest behaviour. If a trustee breaches their duties of care and skill, there can be serious consequences for both the trustees and the scheme beneficiaries, and the trustee could be personally liable for any loss to the scheme resulting from the breach. Where multiple trustees are involved in a breach, they can be held jointly and severally liable for the loss caused, which means that all trustees found at fault could be liable for the entire amount of the loss, regardless of whether they are individuals or professional corporations. Under section 10 of the Pensions Act 1995, trustees can be liable for civil penalties of up to £5,000 per breach for individuals and £50,000 for any non-individuals, such as professional trustee companies. Liability can also be valued as the amount it would take to restore the pension had the breach not taken place, which is similar to calculations of damages; under this, liability can be for much higher sums – for example, in one Pensions Ombudsman case it amounted to over £500,000 in personal liability of pension trustees (complaint by Mr R Adams and others (11 March 2009)).

Directors of corporate trustees may have more protection from liability than individual trustees, but they may still be held liable to the company for any breach of duties they owe to the company. There are some ways that liability can be avoided, such as through exclusion or indemnity clauses in the scheme documentation or by the court's discretion to exempt a trustee from liability if they acted honestly and reasonably and ought to be excused.

However, in addition to financial consequences, breach of duty can also damage the reputation of the trustees and the scheme. This can lead to a loss of trust and confidence from the scheme beneficiaries, which can have long-lasting implications.

If you would like to discuss anything raised by this blog, please get in touch with a member of the team.


Jennifer Crawford

Senior Associate

Juliet Bayne


Sarah Keir

Trainee Solicitor