APT·GOVERNANCE · Module 5: Scheme Documentation and Governance in Practice·UnitGOVERNANCE · Unit 01Access: Premium
Unit 5.1: The Trust Deed, Scheme Rules and the Balance of Power
Unit 5.1 returns to the governing documents, this time from the point of view of the trustee reading them. It covers the duties, powers and discretions a trust deed, the scheme rules and any amendments confer on trustees, the nature of the relationship between the employer and the trustee board including the effect the funding level has on the sponsoring employer, and where the balance of power between the two sits when a power has to be exercised. Module 1 introduces these ideas in the abstract, and this unit works through them document by document.
What’s in it.
3 topics- Topic 01
Duties, Powers and Discretions of Trustees Under a Trust Deed, Scheme Rules and Amendments
36 questions - Topic 02
The Nature of the Employer/Trustee Relationship and the Effect of the Funding Level on the Sponsoring Employer
29 questions - Topic 03
The Balance of Power Between Employer and Trustees and When to Exercise Trustee Powers
41 questions
Sample questions
3 of manyA few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.
What is the purpose of an interim trust deed when an occupational pension scheme is first established?
- To list every member's individual benefit entitlement in full.
- To record the scheme's investment strategy at the point of outset.
- To establish the trust and basic governance ahead of the definitive deed.Correct answer
- To permanently replace the need for a definitive trust deed.
ExplanationAn interim trust deed lets a scheme establish its trust and appoint trustees straight away, while the detailed benefit rules are still being finalised for the later definitive deed. Key takeaway: the interim deed is a practical starting document, not a permanent substitute for the definitive deed.
An employer that established and funds a DB scheme wants to reduce its involvement to reflect that trustees, not the employer, run the scheme day to day. Which of the employer's typical roles would remain even after this change?
- Statutory regulator of the scheme, replacing The Pensions Regulator's oversight function.
- Full control of investment strategy, since this is typically an employer, not trustee, power.
- Sponsor bearing funding risk and holding reserved powers over cost-impacting decisions.Correct answer
- Sole responsibility for exercising individual member discretions, to reduce trustee workload.
ExplanationEven where an employer wants to reduce its day-to-day involvement, its underlying role as funder bearing the risk of a shortfall, together with any powers the deed specifically reserves to it, does not disappear; the trustees remain responsible for fiduciary administration regardless. Key takeaway: funding responsibility and reserved powers persist independently of the employer's level of engagement.
An employer, facing financial pressure, asks the trustees of its DB scheme to adopt weaker funding assumptions so that required contributions fall, arguing this is in everyone's interest because it protects the employer's viability. What is the trustees' correct position?
- The trustees must independently assess the proposed assumptions, weighing covenant strength against members' interests.Correct answer
- The trustees should let the scheme actuary decide the outcome without any further trustee input.
- The trustees have no power to question funding assumptions once the employer has proposed them.
- The trustees must reject any employer-proposed assumption change without considering its underlying merits.
ExplanationFunding assumptions must reflect the trustees' own reasonable judgement, informed by actuarial advice and the strength of the employer covenant, not simply the employer's stated preference; weakening assumptions purely to reduce contributions risks understating the true cost of members' benefits. Key takeaway: covenant weakness is a factor to weigh, not a reason to adopt whatever assumptions the employer proposes.