BEING A TRUSTEE IS MUCH MORE COMPLICATED THAN IT LOOKS

Sometimes when you're in the middle of a lengthy meeting and a pensions lawyer is droning on about the implications of the Pensions Act of 2004 it is easy to forget why you are there. What are trustees for? Why do we go to the bother? The answers to these simple questions are important. If you make a conscious effort to bear them in mind you will find that many aspects of being a trustee become much clearer.

So let's start with the most important thing: a job description. Your job as a trustee is to represent the interests of the members of the pension scheme. In the elegant words of the Pensions Regulator, "as a Trustee, your first loyalty must be to the scheme beneficiaries and you must always act in their best interests".

That seems a simple enough challenge, but it is actually quite complicated. And if you understand that complexity you begin to realise that the job requires some subtlety. Sometimes, for example, you have to make compromises and even sacrifices because you can't make everybody happy all of the time. Sometimes months seem to go by and nothing appears to have happened, despite clear decisions being taken at the last meeting of the trustee board. It can be a frustrating and rather opaque business.

APPLES, PEARS AND DEFICITS

How bad is the deficit problem? No one knows exactly because pension fund reporting is patchy as well as unreliable. For instance, if you are calculating a deficit, by definition you must value the assets and compare this to the liabilities. The trouble is that that second step involves making guesses, not least about the discount rate that is used to put a value today on tomorrow's liabilities (the higher the rate you choose, the lower the value of the liabilities today). So one fund might report a deficit of £X and another of £Y. Unless they have chosen the same discount rate, the figures cannot simply be added together to get a meaningful number. (I will come back to this issue when we look at investment strategies and the role of advisers in shaping them.)

This points to a very important aspect of pension funds that all trustees should grasp. Every fund is different. A fund will have a certain number of members of each category and hence a unique liability structure. It will either be closed to new members or remain open. It will have its own array of assets that will be different from other funds. It will have its own trustee board with a unique set of actors and interactions. It will have its own relationship with the sponsoring company that will depend on all kinds of human and material factors. We will come back to this in subsequent chapters. Of course, an important point is that there are similar issues and questions facing all funds.

But let's go back to the question of deficits. For those readers who are not trustees of funds with big deficits - be thankful! Your job is a whole lot easier because you can work from a position of being properly funded, with everything that this implies, not least a much more straightforward relationship with the sponsor.

THE TRUSTEE AS WALKING ENCYCLOPEDIA

It is worth elaborating on the point that trustees cannot be expected to be experts on everything. In fact, the law is pushing in the direction of requiring more expertise - one reason why trustees have been urged to work harder and why there is a nascent bull market in independent trustees who supposedly know more about what they are doing.

But again I think it's a matter of being realistic. You want to be an effective trustee. And you can achieve that by improving your knowledge and learning to ask the right questions. You absolutely cannot achieve that by having a scatter-gun approach to learning, however, and that is sometimes what it seems the Government wants. You will do much better if you focus your efforts. You might even discuss this with your fellow trustees. It would be perfectly reasonable for some of them to focus their efforts on administrative matters while you and a couple of colleagues paid more attention to investments, for example.

My point is that you should not be put off from becoming a trustee by a sense that you don't know enough. Nor should you feel that you must spend all of your time attending training courses on the implications of the Pensions Act just to make sure that no one can accuse you of being an ignoramus.

BAFFLED BY GOBBLEDYGOOK

This last point is extremely important. If you have been a trustee for a while, you will be familiar with the thick volumes of analysis and prognostication that is the standard fare of actuaries and consultants. Another of trustees' little secrets is that very few actually bother to read these volumes beyond a quick scan of the executive summary. They are boring and intimidating, especially to non-mathematicians. And how are you going to cope with a statistical regression analysis if you gave up maths at school forty years ago?

Well, you can cope, and the way forward is to do what I suggested you must do in order to get to know your Trust Deed. Reading papers, even if it takes a full day or more of preparation before a meeting, is the only way to arm yourself to have a meaningful discussion with your advisers. And it is absolutely the only way to tease out any chinks in your advisers' armour and, trust me, there will be chinks.

I suggest below some questions you should ask of your advisers. In Chapters Seven and Eight I will explain why this is especially important when it comes to making investment decisions. But the big point is that asking questions, including tough ones, of your advisers is part of your duties as a trustee. It is legally safe to rely on their advice. But if you rely on it totally and never question it, then you are not being an effective trustee.