UK pension trustee liability insurance: Key insights for trustees

Pension trustee liability (PTL) insurance can be a crucial safeguard for trustees of UK pension schemes. This article explains: 

• What is PTL insurance?
• Cover typically provided
• What about regulatory investigations?
• The importance of timely notifications 
• Common exclusions 
• Best practice for trustees when taking out (or renewing) PTL insurance 

What is pension trustee liability insurance?

Pension trustee liability (PTL) insurance is designed to protect pension trustees from personal liability arising from claims made against them in their capacity as trustees. It is beneficial because it means trustees can claim an indemnity from insurers under the PTL, without having to draw on an employer indemnity or indemnity in the trust deed. It may also provide protection when the indemnities are not available for any reason. 

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Cover offered by PTL Insurance

PTL insurance typically covers a range of insured parties, including: 

• Individual trustees: Protection against claims made by third parties alleging wrongful acts. 
• Corporate trustee companies: Protection for any corporate trustee company and its directors against claims made by third parties alleging wrongful acts. 
• Sponsoring employers and pension schemes: Limited coverage related to indemnities provided to individual trustees. 

PTL insurance typically covers trustees against any liability they may face resulting from civil claims against them alleging wrongful acts (as well as the costs of defending such claims). However, it is important to note that PTL policies will contain exclusions, which may limit the scope of cover.

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What about regulatory investigations?

PTL insurance will typically cover trustees against any individual legal costs incurred by them in connection with a regulatory investigation (such as those initiated by the Pensions Regulator). However, it is important to note that this cover is for individual trustees (or corporate trustees). A PTL policy will not cover sponsoring employers or the scheme itself for the costs of handling a regulatory investigation. For that, sponsoring employers will need to rely on other insurance policies, such as professional indemnity insurance. 

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The importance of timely notifications

A crucial aspect of managing PTL insurance is understanding when and how to make a notification to insurers. PTL policies usually require trustees to notify insurers of any claims as soon as they arise. Additionally, there is normally the option to notify insurers of “circumstances” that could potentially lead to a claim in the future. 

Examples of “circumstances” include:

• a letter before action threatening a claim against a trustee; or 
• an enquiry from the Pensions Regulator raising concerns prior to a formal investigation. 

Notifying insurers of any circumstances is generally advisable, as it ensures that any future claims arising from those circumstances will be deemed notified to insurers at the same time as the circumstances were notified and benefit from cover under that PTL policy (even if it has subsequently expired by the time the claim materialises). This proactive approach helps prevent gaps in coverage when transitioning to a new policy year, since claims arising out of known circumstances will typically be excluded from the new policy and would not otherwise be covered by the old policy, unless the circumstances had been formally notified. 

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Exclusions – what isn’t covered? 

While PTL insurance provides essential coverage, certain risks are commonly excluded. Standard exclusions that trustees should understand are: 

• Deliberately fraudulent acts or omissions: Claims arising from intentional misconduct are typically excluded. 
• Financial support directions (FSDs): FSDs (issued by the Pensions Regulator under its “moral hazard” powers) are generally excluded from PTL policies. However, contribution notices (also issued by the Pensions Regulator) may be covered. 
• Claims related to prior notifications: Any claims that have been notified to previous policies may not be covered. 
• Depreciation of investments: Claims related to investment losses are often excluded. 
• Failure to fund: Claims against trustees for failing to secure funding for the pension scheme are usually not covered. 

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Best practice for pension trustees

To manage liability risks effectively when taking out or renewing a PTL policy, trustees should: 

• Engage a broker: Work with an insurance broker who can provide insights into suitable policies, what is market standard at any given time, appropriate policy limits, and premiums. 
• Understand policy limits: Be aware of the maximum payout limits and any sub-limits for specific elements of the cover. 
• Review retentions: A retention is the initial amount that the insured must cover before the insurance coverage begins (equivalent to an “excess” in relation to many personal insurance policies). While there should usually be no retention for cover given to individual trustees, a retention may apply to the sponsoring employer or corporate trustee companies. 
• Legal review: Consider having a legal review of the policy wording at renewal or when purchasing insurance. This can help identify potential issues or gaps in cover before the policy incepts, helping to avoid problematic issues down the line when a claim arises and trustees need to rely on the policy. 

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Conclusion

Pension trustee liability insurance is an essential tool for protecting trustees against potential claims and the costs of defending them. By understanding the coverage, adhering to notification requirements, and implementing best practice, trustees can maximise the protection available to them through PTL insurance and navigate their responsibilities with greater confidence and security. 

Authored by the Pensions team.