If you are reading this, you are almost certainly a pension fund trustee. Or perhaps you are considering becoming one. Or perhaps you are an adviser looking for tips into how trustees think about the issues you advise on. At a push, you might even be a finance director or company manager seeking an insight into how trustees think and behave.

Otherwise why on earth would you be looking at a book on such an apparently unexciting subject? Pension funds are boring, aren't they? And nothing could be more humdrum than the job of administering them as an unpaid trustee. (Only a few professional trustees earn money from their duties and they don't get rich.) If you think about the risk that you might be sued for negligence, and then think about the interminable meetings discussing how to communicate the tax implications of maximum sheltered lifetime allowances, it quickly becomes clear that being a trustee is not exactly a bundle of fun. It can be a frustrating experience. And in a rapidly changing regulatory environment, it seems that every few weeks there is a slew of new stuff to be digested.

In fact, I want to make the case that, for all of its occasional frustrations, being a trustee is an important and rewarding role. You are responsible for something that matters hugely to the people whose interests you represent - the safety and security of their retirement income. And whereas being a trustee was once rather unexciting, these days it can be surprisingly challenging and fulfilling. If you are involved in a pension scheme with a deficit, for example, the chances are you will be negotiating, sometimes tensely, at the highest levels in your company over millions of pounds in the form of recovery plans and contribution levels. You might be consulted by your managing director confidentially over highly sensitive plans for takeovers and dividends. You may well be in fairly constant communications with the board of directors.

The powers of trustees have increased by more than their status at present, but there is no doubt that the job has far more to offer today than it did as recently as a couple of years ago. And the message of this book is that, by using your powers responsibly and carefully, you can make a real difference. If you can be effective as a trustee, then you can carry out one of the most important, but underestimated, governance roles in modern corporate life. For that you will earn the eternal gratitude of the members of your pension scheme. And you never know, one day trustees might be paid as a matter of course!

This book is all about being effective as a trustee. I decided to get writing because I was growing perplexed by the changes in my own role as a trustee and somewhat dismayed at what seemed to be a generally low level of knowledge and confidence among trustees I met and to whom I talked. I was elected by scheme members as a trustee of my company's pension scheme in 2002 (typically, I was the only candidate!) and like to think I have learned a lot from the experience. But I have had to learn most of this as I have gone along. No one ever sat me down and gave me a set of commandments. The one professional training course I went on was little more than an overview, and presented none of the actual dilemmas that trustees face routinely. Worse, the sections that discussed investing were so amateurish it was embarrassing.

As it happens, the fund I represent has been facing many of the problems that have challenged trustees, not least the rapidly shifting regulatory environment. But I want to make clear that this book is not about my fund and it is certainly not about my fellow trustees, with whom I have been privileged to serve. For obvious professional and personal reasons it would be quite wrong for me to generalise from just my fund or to use any materials that are confidential to the trustee board and its advisers. That is why I have talked to lots of funds and trustees to draw out the examples and issues I describe below. It stands to reason that the examples are presented in a form that makes it impossible to identify the fund in question, unless there has been public reporting, in which case I have felt free to attribute facts or comments. But I repeat: readers would be quite wrong to assume that they can infer anything at all from the material below about the scheme at The Economist. The case I am making is a general one based on careful research.

So let me begin with some general observations about pension fund trustees. Most trustees are struggling to keep up with the demands of the job. Too often, funds are making decisions that are wrong or are deferring perfectly good decisions because the trustees are afraid they might make a mistake. Only a handful of trustees actually know anything about the biggest factors that determine whether their fund will sink or swim in the long run. Too many trustees are appointed by their companies and are terrified of being seen to cause trouble by questioning how things are done. They would rather sit there and rubber-stamp things than challenge something that might be unethical, dodgy or just plain stupid. Only rarely do trustees cross-examine their advisers and check whether they are talking sense and whether the fund is therefore pursuing the right goals. The quality of advice varies enormously, which makes it difficult to know whether to trust what you are being told. And many trustee boards are riddled with conflicts of interest that put all of the trustees concerned in very awkward positions.

And the amazing fact is that if you ask trustees about this, most of them will tell you they are doing a fine job in difficult circumstances. The difficult circumstances bit is true - it is much harder being a trustee today than it was a few years ago. But come on, it's pretty obvious that the average trustee is finding life quite challenging. You might have been persuaded by your advisers to conduct a "Risk Review" - a sort of survey designed to identify where your fund might be vulnerable to risks of various kinds. Sometimes these can be quite useful exercises, especially when trustees tell the truth. And when they do, one finding is extremely common, although it is not much talked about: one of the biggest risks facing most funds is the level of ignorance among the trustees. Most of them simply do not know enough to be effective at what they do.

If this sounds too harsh, ask yourself about your own knowledge and abilities. Have you done more than a cursory training course? How much of that did you understand, assuming that what you heard was actually correct? Go on, be honest: there are whole areas you are a bit hazy on, aren't there?

Actually that might not matter, it just depends on the holes. I went on one training course only to find during the afternoon that I knew more than the person doing the training. Now, I confess that there are some areas of trusteeship that I have deliberately avoided learning more about. One is the question of fund administration - you'll find some thoughts on this in Chapter Five below. I haven't avoided this because I am a total ignoramus and feel uncomfortable discussing it. Rather, I made a calculated decision. How much would it matter if a few glitches occurred in the processing and transfer of pensions and contributions? Obviously this would not be a trivial matter - it might be a sign that there were more serious flaws, perhaps even a fraud going on. Most likely, however, is that glitches will be caught and corrected. It doesn't need me to become a specialist in money transfer and clearing to tackle this. And the extra value I would create for the fund would be tiny even if my involvement speeded up improvements.

My feeling was I could add more value by identifying and learning about the really big issues - the ones with the potential to make a real difference to the overall health of the fund. In other words, provided I am satisfied that the specialist administrators who take care of the details are doing a good job, then I can think about the interesting and big things. (Some of these relate to administration - for example, trustees often have discretion on transfer values and early retirement policies - but are not directly administrative matters.)

That is my starting point as a trustee. What can I do to make a difference? And that is what this brief book is designed to help you to think about. I think I know how to make a difference. But to explain it to you I need to begin with some really basic issues.

Pension funds are quite technical and their fast-changing regulation even more so. If you want them, there are thousands of pages available that elaborate on, or challenge, my text below. If I have made any mistakes, it is entirely my own responsibility. But I have tried to be as careful as possible to make complex matters clearer than they often seem.

Whether or not you agree with me, I want to make it clear that I have not tried to be comprehensive or definitive. I am well aware that there is a complex and demanding recent history to the pension industry in the UK. It might be easy for a younger generation of trustees simply to criticise those who went before them, but often the reality demands more nuance. Often what looks stupid today was common practice a couple of decades ago among trustees, advisers and company sponsors who had good collective reasons for acting as they did then. What we must remember is that things change. And nowhere have they changed more than in the theory and practice of pension fund management.

I would like to extend my gratitude to several people who generously and bravely offered to read the book in draft form and whose helpful comments I have largely incorporated. One or two prefer to remain anonymous, but among the others I would like to offer warm thanks to Charles Cowling, Jon Exley, Peter Tompkins, John Ralfe, Norma Cohen and Cliff Speed. Thanks, too, to Martin Taylor for allowing me to quote in full his important NAPF speech. I never expected to write this book (I had much more glamorous things in mind!), so I must thank Chris Stoakes and James Piesse for their encouragement and support. Sincere thanks also to Bill Emmott, editor of The Economist, for his permission.