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The challenges from uncertainty and risk, and the role of insurance
16 July 2021

The challenges from uncertainty and risk, and the role of insurance

Pension Trustee Liability insurance (PTL) was, for many years, regarded as a dull but necessary part of running a scheme. But seemingly overnight, this has changed dramatically. Trustees and their advisors now recognise the vital role that PTL can play in managing risks in today’s fast-moving pensions environment, as trustees manage compliance and residual risks when schemes move into winding-up.

Risks arise from pensions policy in a number of different scenarios:

  1. When matters emerge in the future which were not dealt with in compliance with the applicable law / guidance or scheme deeds and rules in the past, or
  2. When the law changes in the future thereby putting a retrospective duty on schemes to comply, or 
  3. When a scheme member or other interested party alleges either of the two matters above and makes a complaint that the trustees have failed in some way to comply.

The last point is an important risk since the trustees may have a very good record of their actions, the advice they took and, therefore, a solid defence of their actions and to the allegation. It is vital that PTL needs to be there to support trustees to prove that their defence is valid and effective and, if needs be, to respond robustly, backed with legal and other advice as the case requires.

The Pensions Regulator (TPR) has stated its intention to increase regulatory activity via its formal powers to hold an investigation. TPR already has extensive powers to force disclosure of advice and other evidence to them.

It is vital that PTL supports trustees through this process which can be very demanding and can require additional advice and support. It can also be expensive to be involved in an investigation. Importantly, it may well be that TPR ends its investigation with a decision to take no further action.

Many schemes are now approaching their end game and are preparing either partial or full winding up which may include residual risks buy-outs. Here PTL provides an essential role in supporting and protecting trustees since after winding-up there will be no scheme assets to defend them and either a non-existent or uninterested sponsor to indemnify them.

In a residual risk buy-out, the buy-out insurer will take on some of the risks trustees face, namely: data risk, benefit risk, Guaranteed Minimum Pension (GMP) equalisation, methodology risk, and some will accept missing beneficiaries. This still leaves the trustees exposed to other areas of risk and it is important that a good PTL policy is put in place to compliment the residual risk buy-out to support the trustees.

The current market for PTL (and other forms of insurance such as Directors’ and Officers’ Liability, and Professional Indemnity) is a very hard one after many years of soft pricing. This has been driven by some large claims for investigations and by insurers’ assessment of potential future claims arising from regulator action and policy changes, such as to environmental, governance and social (ESG) factors. ESG is a risk because there are various ways to comply and the data is not always that reliable. It is vital that PTL is there to support and help trustees when things go awry in the future.


This article was featured in Pensions Aspects magazine July/Aug edition.

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Last update: 20 July 2021

Martin Kellaway
Martin Kellaway
The Occupational Pensions Defence Union & Independent Trustee
Executive Director

Pensions Projects Specialist – Very Flexible working

Salary: £35000 - £45000 pa

Location: Essex or Hampshire – Very flexible working

Pensions Quality Analyst

Salary: £25000 - £40000 pa

Location: Work for Home or Office locations countrywide

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