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5.0 Introduction

This section covers:

• 

principles and duties of trusteeship

• 

powers and discretions

• 

how to use discretion, and 

• 

distribution of discretionary death benefits. 

 

Comment

All too easy to slip up

Trustees may innocently find themselves in trouble having unintentionally (and without knowing it) misused their powers and discretions under the rules; for instance, through a failure to do what the rules say has to be done. An example would be paying out trust money to persons not named as beneficiaries under the trust: for instance, paying out discretionary benefits on grounds of financial dependency and then finding out that true ‘financial dependency’ on the member never existed; or classing a person as a dependant, only to find out that the scheme’s definition of ‘dependant’ excluded that person.

This section clarifies how powers and discretions should be exercised.

Guidelines when exercising a discretionary decision – advice from The Pensions Ombudsman

A decision maker cannot usually bind its successor to exercise discretion in a particular way. At the time the discretion is exercised, the decision maker must be able to take account of all the particular circumstances of the case. However, there are likely to be complaints if decisions appear to have been taken inconsistently and arbitrarily. The Pensions Ombudsman has written:

'To seek to minimise such complaints, guidelines can be used, but should not be treated as binding, or be applied so rigidly as to give rise to complaints that they fetter the discretion. Guidelines should be reviewed from time to time and they should, of course, confine themselves to considerations which are relevant.

'Like Trustees, the Ombudsman is not bound by his own previous decisions. Nevertheless, his own guideline is that he would normally expect to act consistently with his previous decisions unless he perceives there to be a good reason for taking a different course. Thus, a decision to depart from a previous decision would be a conscious act and the Ombudsman would usually make the reasons for that action clear. He urges schemes to follow a similar practice.'

Guidelines for effective decision making

A report by the Pensions Management Institute and Xafinity Paymaster suggests that, to make more effective decisions, trustees should:

(i) 

adopt a common-sense approach

(ii) 

have a positive attitude to change

(iii) 

undertake tailored, relevant and timely training, centred on scheme design

(iv) 

actively seek out freely available governance material

(v) 

secure a diverse mix of skills and backgrounds

(vi) 

measure and meet the information needs of members

(vii) 

challenge and question advice

(viii) 

review periodically the effectiveness of advisers and advice given, and

(ix) 

strengthen the relationship with the scheme’s administrators.













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