In its Annual Report and Accounts 2009/2010, published last
week, the Pensions Regulator referred to the 'huge
pressures' being put on private pensions due to the economic
climate. Over the last year the Regulator has suspended more than
100 trustees of defined contribution pension schemes, the highest
ever number, to protect over £30 million of assets. In its
annual report published this week, the Pensions Ombudsman has also
reported an increase in the number of complaints.
The Regulator's Report
The principal legal requirement for trustees is to ensure that the
assets invested on behalf of pensioners are sufficient to continue
paying the fund's pension commitments for the foreseeable
future. The Pensions Regulator believes that an increasing
number of employers under economic pressure may be trying to avoid
their commitments, thereby putting at risk the fund's ability
to meet those commitments. For example, the regulator is
looking at an unprecedented number of complex cases – 30
anti-avoidance cases were being investigated at the end of March
2010 alone – and reporting a further increase in
potential avoidance activity. There has also been a record level of
suspensions of trustees of defined benefit schemes, in order to
protect over £30 million of assets, and steps have been taken
to recover over £35 million of misappropriated assets.
The Annual Report emphasises the difficulty of the pension scheme
trustee's role, but it also demonstrates how critical it is
that trustees keep their knowledge and training up to date to
ensure that the employer is not taking them for a ride.
Crucial areas to keep under review include: understanding the
employer's legal obligations; measuring the employer's
covenant; understanding a group's legal structure; the
employer's financial position; the value of alternative forms
of scheme security; whether and when to appoint external covenant
assessors; and what action to take if the essential regular
monitoring of the pension fund's position indicates a potential
problem. Legal requirements for record-keeping have also
increased and this aspect of the trustee's role should not be
taken lightly either. A recent review found that only 19% of
schemes surveyed had checked that they had all the fundamental
common data required.
The Pensions Regulator is undoubtedly becoming more aggressive in
pursuit of dilatory trustees. Its focus is primarily on
defined benefit schemes, which accounted for over 2,000 of the
2,500 cases considered during 2009/2010. However as most new
fund members are enrolled in defined contribution schemes the
Regulator is increasingly concentrating on the risks applying to
such schemes.
The Pensions Ombudsman's Report
The PO also released its latest Annual Report this week. The
number of cases investigated during the year 2009/2010 rose to 950
(out of 3,632 new written enquiries), an increase of 22% over the
previous year, supporting the Regulator's view that the
economic climate is causing increasing problems for
schemes.
The largest number of complaints related to ill-health pensions, in
part due to the scope for conflicting medical advice.
Complaints concerning misleading pensions advice, the category of
most concern to Insurers, were not far behind, rising to 77
complaints, 9% of the total, from 65 the previous year.
Whilst most misselling issues are handled by the Financial Services
Authority rather than the Pensions Ombudsman, where advice related
to Additional Voluntary Contributions to occupational pensions
schemes, the FSA has no jurisdiction and it is left to the Pensions
Ombudsman to investigate. Other areas to show increases in
the number of complaints include payments to spouses and dependants
and early retirement benefits.
The Pensions Ombudsman Service also handles complaints regarding
the Pension Protection Fund levy and its calculation. It
dealt with 45 such cases during the year, finding in every case
that the calculations had been correctly made, albeit not always
very clearly explained.
For more detail on the Pensions Ombudsman's Report click
here.
Conclusion
As anticipated, the tough economic climate is resulting in an
increasing number of problems faced by pension fund trustees.
For Insurers the message is clear. Pension trustees who
regularly participate in training and who can demonstrate the
implementation of robust, risk-based procedures, are likely to be
the more attractive risks.
Link to Pensions Regulator Press Release
Link to Pensions Ombudsman Publications
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 29/07/2010.