ABSTRACT

The powers of pension scheme trustees are very similar to those of trustees under normal private trust law. Their powers are largely governed by the general law and statutes, in particular the Trustee Investment Act 1961 and the Trustee Act of 1925. Normally, by the trust deed, the powers of the trustees to invest as authorised under the Trustee Investment Act 1961 are extended and enlarged. The powers under the Trustee Investment Act 1961 to invest in securities and other forms of investment is limited and therefore it is usual, both in wills and other documents, as in pension trust deeds, to enlarge and widen these powers to give the trustees the same rights to invest as is normally incidental to beneficial ownership. The form of investment power that is generally contained in trust deeds will, in all probability, also contain provisions conferring on the trustees’ power to invest in such stocks and shares and such other investments as they, in their absolute discretion, see fit, ie all the powers of a beneficial owner in relation to the fund. Although the power to invest is wide, the trustees have an overriding duty to take reasonable care on behalf of the members of the scheme, and, of course, are in a fiduciary relationship to them (Re Whiteley (1886) 33 Ch D 347). Not only are the powers of investment extended to those of beneficial owner by the trust deed but normally the duty to diversify under s 6(1) of the Trustee Investment Act 1961 is excluded. In the past, some trust deeds attempted to exclude the duty to ensure that the investments of the fund are suitable in relation to its liabilities and sufficiently diversified. It is uncertain if this duty can be excluded and therefore many modern pension scheme trust deeds do not attempt to exclude these duties. Frequently, there are clauses in the trust deed which allow the trustees to be involved in activities which, although not strictly investment, may be advantageous to the pension fund. Sometimes the trust deed permits the trustees to apply only part of the fund in the purchase of options or in transactions on the London International Financial Futures Exchange. In addition, it is reasonably common to empower the trustees to engage in underwriting or sub-writing new issues on the Stock Market and to purchase assets which, although they may not produce an income, will produce a substantial capital yield. It is also quite common for the trustees to have full powers to purchase, sell, mortgage and charge property whether real or personal. Normally, the trustees will also be authorised to invest or apply the fund in the purchase of insurance policies, annuity contracts, or other insured form of investment policies which may be financially beneficial to the

give effect to decisions the trustees have already taken. Section 25 of the Trustee Act 1925 permits trustees to delegate the exercise of all or any of their powers or discretions for up to 12 months, but it appears that this power is not generally used for the appointment of investment managers or other experts in the field of investments. It is thought that this is because the statutory power under s 25 does not provide for the remuneration of attorneys or agents and, in addition, the trustees remain liable for any acts or defaults of the agent as if they were the acts or defaults of the trustees themselves. Commonly, the trust deed will include express powers as to the appointment and remuneration of one or more investment managers who may exercise the investment powers of the trustees on their behalf and may also have the power and duty to appoint a property manager to administer the scheme portfolio of property investments. It is also common for there to be included in the trust deed powers to participate in a common investment fund with other occupational pension funds whether on a connected or unconnected basis. We have already noted that it is good practice to give the trustees powers in connection with insurance contracts and retirement annuity contracts.