Following a three-month consultation which ended on 30 May 2008, to which there were 42 responses from a cross-section of interested parties, the Pensions Regulator (TPR) has today published guidance to help trustees of occupational pension schemes and employers identify, monitor and manage conflicts of interest. This exercise arose in response to TPR's thematic review of scheme governance, published in July 2007, which identified conflicts of interest as a priority area.

A conflict of interest may arise when a trustee is required to take a decision where:

1. he or she is obliged to act in the best interests of the scheme's beneficiaries and
2. at the same time he or she has or may have either:
   • a separate personal interest; or
   • another fiduciary duty owed to a different beneficiary.

Conflicts 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 the beneficiaries at risk, or subsequently prove to be invalid. TPR's stated aim is to help trustees identify, monitor and manage conflicts to avoid such consequences.

TPR wishes to encourage a culture of openness in which disclosure of conflicts is "embraced, not ignored". Although it expects employers, trustees and their advisers to resolve conflicts themselves, TPR may get involved if it becomes aware of an actual or potential conflict which presents a significant risk to members’ benefits.

The guidance document includes five high-level headings or "principles" to help trustees to manage conflicts:

• Understanding the importance of conflicts of interest;
• Identifying conflicts of interest;
• Evaluation, management or avoidance of conflicts;
• Managing adviser conflicts; and
• Conflicts of interest policy.

The guidance does not

• imply a 'one size fits all' approach (to the contrary, it recognises that the way conflicts are managed will be case-specific);
• address conflicts which may arise in contract-based arrangements, as these may differ considerably; or
• provide legal advice nor replace the requirement to seek independent legal advice tailored to the specific circumstances of the trustees' situation, where appropriate.

Many commentators felt the original draft was far too lengthy and detailed. In response, TPR has provided a separate summary (or abridged) version of the guidance which simply summarises the key principles and some of the questions TPR feels trustees should be asking themselves. This may be a particularly useful tool for smaller schemes.

It is worth noting as an aside that today also marks the entry into force of Part 10 Chapter 3 of the Companies Act 2006 on directors' declarations of interest. Company directors who are also pension scheme trustees must declare their interest to all other directors and might require their explicit authorisation to cover the potential conflict of interest.

This week TPR also published final guidance to assist trustees in calculating transfer values in DB schemes on the new statutory basis which comes into force today. The responses to its August 2008 consultation draft have resulted in some clarification, but there are no new principles involved. TPR will publish its consultation response report in coming weeks.

Aries Members login for more on this and other recent new TPR guidance on

• selection of mortality assumptions for DB schemes and
• principles for effective member communication

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