Celebrating a Century: The enduring relevance of the Trustee Act 1925 for UK Pension Trustees

The Trustee Act 1925 was introduced during a time of economic and political upheaval in post-war Britain. Amidst economic challenges and frequent elections, the Conservative government sought to reform governance, resulting in a series of legislative measures, including the Trustee Act. While the Act is focused mainly upon concepts surrounding property trusts, many of its provisions are also applicable to trusts in a pensions context, some of which continue to apply today. In this article, we explore the sections of the 1925 Act that we still rely on today when advising our trustee clients.

• Trustee Protections: Sections 27 and 61
• Administrative Provisions: Sections 25 and 40
• Managing Liabilities and Disputes: Section 15
• Expanding Trustee Powers: Section 57

Trustee protections: Sections 27 and 61

Section 27: statutory notices

• Section 27 of the Trustee Act provides a statutory discharge for trustees when winding up a pension scheme, if they follow the notice process contained in that section. This process requires trustees to advertise their intention to wind up a pension scheme and distribute trust property and assets, as well as to request any interested persons to give notice of a claim for benefits within a specified period (of at least two months).
• By adhering to the specified advertising process, trustees can protect themselves from liability concerning unknown beneficiaries who do not come forward within a set timeframe. This provision remains a critical step in the winding-up process, allowing trustees to distribute assets with confidence. As such, section 27 notices continue to remain a common feature in the winding-up process for many pension schemes today.
• The extent to which trustees could rely on a section 27 notice to absolve liability was central in the case of AON v MCP Pension Trustees [2010] EWCA Civ 377.
  • In this case, 32 members who had transferred into a pension scheme in 1996 were overlooked when the scheme was wound-up in 2003. While the trustees of the scheme had issued a section 27 notice, none of the 32 members came forward. When the failure to buyout the 32 members was eventually discovered, around £868,000 had to be paid out to 15 of the 32 transferred members.
  • The Court determined that, despite the section 27 notice, the trustees remained liable for the benefits of the overlooked beneficiaries.
  • Section 27 merely absolves trustees from liability for individuals of whose claims the trustees “have not had notice at the time of…distribution”. The trustees had received notice of the members’ claims at the time of the 1996 transfer; the fact that they had forgotten this by 2003 did not mean that they had no notice of the claims.

Section 61: relief from personal liability

• This section offers a safeguard for trustees, granting courts the power to relieve trustees from personal liability for breach of trust if it appears to the court that the trustee has acted “honestly and reasonably” and “ought to be excused for the breach”. It is particularly reassuring for trustees without an exoneration clause in their scheme’s governing documents, providing a fallback in challenging situations.

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Administrative provisions: Sections 25 and 40

Section 25: delegation by power of attorney

• Section 25 of the Trustee Act allows trustees to delegate their powers through a power of attorney for up to 12 months.
• While less relevant with the advent of corporate trustees and digital signing solutions, it remains a useful tool for individual trustees where a document must be executed urgently, as an absent trustee can use section 25 to appoint another individual to sign on their behalf.

Section 40: vesting trust assets in new trustees

• Ensuring the smooth transition of trust assets to new trustees, this section provides for automatic vesting of assets in a new trustee without the need for additional documentation, provided the trustee is appointed by deed. Section 40 can serve as a reliable fallback when dealing with historic trustee changes.

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Managing liabilities and disputes: Section 15

Section 15: Bradstock agreements

• Titled “Power to compound liabilities”, section 15 essentially provides trustees with a broad statutory power to manage scheme assets, as well as to deal with any claims or debts.
• In the early 2000s, trustees of the Bradstock scheme used section 15 to reach what is now known as a “Bradstock agreement” with their scheme’s sponsoring employer. Section 15 enables trustees to compromise a debt, which the trustees used to compromise a section 75 debt owed to the scheme, reaching an agreement with the sponsoring employer of the scheme which was facing insolvency.
• However, it should be noted that this use of section 15 of the Trustee Act is likely to be less relevant today, as compromising section 75 debts in this manner can risk a scheme’s eligibility for the Pension Protection Fund (PPF). Additionally, there are now alternative methods to deal with section 75 debts, such as flexible apportionment arrangements, which trustees would be expected to use ahead of reaching a Bradstock agreement with their sponsoring employer.

Section 15: settling disputes

• Section 15 is still relevant today in relation to member disputes, as it enables trustees to settle any claim or matter relating to the trust. This power can be useful in settling potential disputes with members, such as overpayment cases, even if the trust rules do not contain this specific power. Using section 15 can avoid claims being escalated to the Ombudsman when trustees can otherwise reach an amicable agreement with the member.

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Expanding trustee powers: Section 57

Section 57: expedient use of trust assets

• This provision allows trustees to seek court approval to use trust assets in manners not explicitly permitted by the trust deed and rules, provided it is “expedient” to do so.
• In NBPF Pension Trustees Limited v Warnock-Smith & Anor [2008] EWHC 455 (Ch) – also known as National Bus Surplus– the trustees of the scheme wished to distribute its surplus assets to make taxable lump sum cash payments to members and to purchase insurance.
  • As the cash payments would be in the interests of the trust’s beneficiaries (scheme members), the Court determined that this use of surplus assets could be considered “expedient” and thus permitted under section 57 of the Trustee Act.
  • Additionally, while taking out insurance appeared to benefit only the trustees, the Court was persuaded that insurance would also benefit members, as members who brought claims against the trustees could recover a greater amount (via the insurer) than if the trustees were uninsured. The Court therefore also allowed the use of trust assets to purchase insurance.
• As can be seen, section 57 offers a mechanism for trustees to manage surplus distribution creatively, ensuring member interests are prioritised.

Conclusion

Despite its age, it is evident that the provisions of the Trustee Act 1925 continue to offer valuable support to pension trustees. From protecting trustees against unforeseen liabilities to facilitating efficient administration and dispute resolution, the Act remains a cornerstone of trust law. As pension schemes evolve, trustees can rely on the enduring principles of the Trustee Act 1925 to navigate the complexities of modern pension management.

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Authored by the Pensions team.