Company pension schemes are not immune from conflicts of interest despite many having robust procedures in place to deal with them if they should arise. Indeed, all those involved in the running of a pension scheme, which typically might include an independent trustee, scheme auditor, independent financial adviser, or lawyer, need to be fully aware of the possibility.

Conflicts of interest, which can range from the subtle to the blatantly obvious, can sometimes arise when staff of an employer, for example, are appointed as trustees of the company’s pension scheme. There’s nothing inherently wrong with the practice because such trustees are likely to bring with them a great deal of useful knowledge and expertise. However, the trustees of the scheme are there to protect its members, not the interests of the employer.

The Pensions Regulator recognises such appointments can be “beneficial” but warns that conflicts are inherently likely to arise before and after such appointments, especially if senior staff are involved. Trustees also need to be wary of conflicts involving scheme advisers because that could affect the impartiality of any advice given. These need to be identified and appropriately managed.

The regulator concedes the way conflicts are managed will often be case specific, reflecting the nature or scale of the conflict. Some conflicts of interest can be managed by a variety of methods while others may be so acute or pervasive that it would be better to avoid them entirely.

According to the regulator, “When seeking to manage a non-trivial conflict of interest, and where the conflict could have the potential to be detrimental to the conduct or decisions of the trustees, the regulator would expect trustees to seriously consider obtaining independent legal advice, and to act on that advice.”

Conflicts management should be an on-going process, says the regulator, with trustees regularly reviewing their arrangements to ensure that they are still adequate, particularly when circumstances change. There should be a culture of openness – disclosure of conflicts should be embraced not ignored.

“We expect all conflicts of interest to be resolved sensibly. Where a conflict comes to the attention of the regulator and the regulator considers that it is not being managed appropriately, we will take appropriate action.”

Legal firms are expected to have robust procedures in place for managing conflicts of interest, and these will usually be documented by the trustees. The contract appointing a legal adviser should not only be clear and comprehensive, but also spell out any policy for managing conflicts of interest. Trustees will certainly request that any real or potential conflicts should be disclosed to them.

According to the regulator, “Conflicts of interest are a serious concern for the regulator. They arise in the trustee governance model because many trustees have a stake in the scheme or its sponsoring employer. If not managed effectively decisions may be taken that put the interests of beneficiaries at risk, or subsequently prove to be invalid. Our aim is to help trustees identify and manage conflicts and avoid such consequences.”