The Hewlett Packard Limited Retirement Benefits Plan has changed the structure of its trustee board to a trustee company, in a move to simplify processes while increasing scrutiny of trustee actions.
Running a defined benefit pension fund is not always an easy feat, but many trustees think boards are generally adept at achieving their objectives.
A lot depends on the level of sophistication and complexity of what’s going on with the scheme
Alastair Meeks, Pinsent Masons
A survey conducted by consultancy Hymans Robertson showed that 96 per cent of independent trustees said they think trustee boards are either very likely, likely, or somewhat likely to meet their goals.
However, the research showed that 37 per cent of chief financial officers have low or very low confidence in the trustees of their DB schemes and their strategy to reach their target.
Either way, when it comes to managing a scheme, anything that boosts efficiency is often welcome.
The £1.6bn scheme, which has a total of 4,489 members, informed members that in October 2016 the structure of the trustee board changed to a trustee company.
Consequently, the individual trustees became directors of the new trustee company, which is now the sole corporate trustee of the scheme.
One of the scheme’s reasons for this change was “to simplify the process for executing deeds and documents relating to the plan”.
The change also means that “investments and contracts can be held in the name of the trustee company, rather than in the names of the individual trustees”, said the scheme.
“As directors of a company, the trustee directors benefit from an additional layer of protection from personal liability,” said the scheme.
“However, as directors of a company, they must comply with their directors’ duties and with other statutory requirements for directors of companies. This adds an additional layer of scrutiny to their actions,” it added.
The move came following a scheme merger in July between the plan’s main HP section and the £59.5m Bank of Ireland/Medas section.
Documents can be in trustee company's name
One of the main advantages of transforming into a trustee company is administrative simplicity, said Tim Middleton, technical director at the Pensions Management Institute.
“The trustee is the trustee company, and so there are a lot of documents that never have to be changed because they’ll just name the company as the trustee rather than just name the individual directors of it,” he said.
This applies to official documents used, for example when a scheme wishes to appoint or change an adviser, and the trustee is “always named as the trustee company limited”.
Better legal protection?
Middleton said that, due to the fact that it is a company limited generally by guarantee, there are some additional legal protections.
“It’s a degree of reassurance for the trustee directors that they have the additional liability protection that arises from the corporate structure, but at the same time, the regulator – if it fines trustees – will fine a corporate entity more than it would individual trustees on a traditional board,” Middleton added.
HP scheme reboots parent company guarantee
The Hewlett-Packard Limited Retirement Benefits Plan has replaced its parent company guarantee following a major corporate reorganisation, resulting in improved terms for members.
Alastair Meeks, partner at law firm Pinsent Masons, also noted how changing to a trustee company can be more simple when it comes to new appointments, for example. “Lots of schemes have done it,” he said.
Other advantages are that there are different obligations and there is an extra layer of protection from personal liability for trustee directors. However, the difference in protection is “not huge”, he said. “Lawyers are quite restrictive about what indemnities can be put in place for trustee directors.”
There are other ways in which trustees can achieve greater simplicity without having to change from a trustee board structure to a trustee company.
Meeks said: “For holding assets, one might use a nominee company for example… you’d still have the issue of updating the nominee company with the changing trustees, but you’re only having to notify one nominee company.”
Ultimately, “a lot depends on the level of sophistication and complexity of what’s going on with the scheme” he noted. “Different schemes organise themselves in different ways, and I don’t think there’s a single right way.”
