The Trusts and Succession (Scotland) Act (the "Act") received Royal Asset on 30 January 2024. The Scottish Government is yet to confirm when most of the Act will be coming into force although the sections relating to succession will automatically come into force at the end of April 2024. The provisions relating to trusts are not yet enacted and will require a Scottish statutory instrument to bring them into force.

Scots Law has had its own distinct trust law regime for a long time now (it is thought dating back to the 17th century). Indeed the Act, which is viewed as a much-needed radical overhaul of trust law in Scotland, replaces the main current trust law legislation which has been in place for over a century - the Trusts (Scotland) Act 1921 (the “1921 Act”). 

The reforms introduced by the Act cover a wide range of areas, including: 

  • amendments to the powers and duties of trustees (for example new powers in specific circumstances regarding trustee removals and appointments and trustee decision making and information to be provided by trustees to beneficiaries) a higher standard of care for trustees that are professional trustees; 
  • the formal introduction of the concept of “protectors” (a protector is a person appointed to monitor and provide direction to the trustees in administering the trust and who is independent of the trustees); and
  • various much-needed succession reforms to clarify the existing law and modernise the order in which people inherit to reflect current society. 

In introducing the reforms Siobhian Brown, the Scottish Government Community Safety Minister, stated: “There is consensus that the law in Scotland on trusts is outdated and this legislation, developed by the Scottish Law Commission, will make a significant and positive difference for those who use them.”

How will the Act apply to (Scottish) pension schemes?

At present, the Act specifically excludes pension scheme trusts (via the definition of “trusts”) as they are not considered to be a devolved matter for the Scottish Parliament to legislate on. Therefore, agreement from Westminster is required in order for the Act to apply to pensions trusts. However, it is anticipated that agreement from Westminster will be forthcoming (via the passing of a statutory instrument under section 104 of the Scotland Act 1998), which would then allow the Act to apply to Scottish pension trusts.

Similar to the 1921 Act, it is hard to see how parts of this new Act can be easily applied to  pension trusts and the way in which they are run. For example, the introduction of the role of a protector – it is not clear how this would work with an employer’s role in relation to a pension scheme. There are also specific trustee disclosure obligations in the Act which on one reading would cut across what is a very clearly defined pensions disclosure legislative regime. In addition, section 58 of the Act allows the variation of the purpose of a trust. Again, it is not clear how this would apply to a pension scheme (or indeed if it should at all).  

For these reasons, it would seem appropriate that there may be specific exclusions to the application of certain provisions of the Act to pension trusts. However, as yet there is no indication if specific pension trust carve-outs will be considered by Westminster (or indeed even when Westminster may approve the application of the Act to pension schemes via the required s104 Order). 

ESG Investing

The Act is notable in introducing a specific ESG consideration to the provisions on trustee investment powers. This follows Scottish pensions industry feedback that the Bill should explicitly allow trustees (subject to the terms of the trust deed) to choose to invest in ESG investments. The Act provides that, where two or more proposed investments are suitable for the trust, the trustees may take into account appropriate non-financial considerations in determining which investment to make. It then goes on to state that non-financial considerations include ESG consideration (although it is not to be seen as an exhaustive list of non-financial considerations). 

This is significant in that it is a new power for trustees, albeit it is exercisable at their discretion. However pension trustees have their own trustees’ investment duties and powers under the Pensions Act 1995 and the powers under the Act would only apply where they were exercised, which will not be the case for pension trustees who must fulfil the Pensions Act 1995 requirements. 

It demonstrates though the increasing importance that ESG considerations are being given, not just in a pension scheme specific context, but more generally in trust law. But specifically for pension scheme trustees, this continued increased focus on ESG considerations dovetails neatly with the Pension Regulator’s new General Code of Practice which was introduced at the start of January and is expected to come into force on 27 March 2024. The General Code also has an increased ESG and climate change focus and now specifically incorporates the legislative framework around both and is clearly intended to encourage trustees to place greater importance on these issues and ensure they are addressing the related risks appropriately. 

Next Steps

As noted above, not all provisions of the Act have been enacted yet. However, given the importance of this new Act to Scottish trust law it is important to consider just now the implications for pension trustees on the assumption it will apply to pension schemes in due course.  

Burges Salmon are well placed to advise on specific Scottish pensions law aspects and the implications of this Act for Scottish pension trusts. If you would like to explore this topic further, please contact Helen Woodford.