Good Advice: Managing conflicts of interest

Mar 18 2008 by Asmah Baig, Dickinson Dees LLP

ARE you a senior employee and a trustee of your company pension scheme? Are you a member nominated trustee?

There is heightened awareness of conflicts of interest in relation to pension schemes through draft guidance issued by the pensions regulator. This guidance is designed to assist trustees in managing conflicts of interest. It is based around five principles which the regulator believes will help trustees assess whether its governance arrangements are sufficient for the management of conflicts of interests.

The five principles are:

1. Understanding the importance of conflicts of interests.

There is an emphasis on the importance of trustees’ awareness of its fiduciary duties to the scheme members. Trustees should be able to identify the different types of conflict which may arise as a consequence of their personal circumstances (the classic example being where the finance director of the company is also trustee of the pension scheme).

2. Conflicts of interest policy.

Trustee boards are advised to agree, document and regularly review a policy managing conflicts of interest which should be reviewed by the scheme’s legal advisers.

3. Identifying conflicts of interest.

Existing trustees should notify the board of trustees of any existing and potential conflicts. New trustees should disclose any conflicts of interest on appointment. Additionally, there should be a process of identifying new conflicts which may arise following the status of a trustee.

4. Evaluation management or avoidance of conflicts.

Where a conflict has been identified, a trustee board should have a process in place for deciding whether a more active form of conflict management is required. Where a material conflict of interest is identified then legal advice should be sought.

5. Managing adviser conflicts.

Trustees must have in place a policy which ensures that any conflicts with professional advisers are identified. Care should be exercised where the board of trustees use the same adviser(s) as the sponsoring employer.

The consultation runs until May 30.