THE WHOLE subject of pensions is in national focus as never before as
a result of the Maxwell scandal.
The Government has instituted a committee of inquiry under Professor
Roy Goode to investigate the legal and regulatory framework of
occupational pension schemes, and to report within a year.
While the Government will no doubt act on the Goode Committee's
recommendations, its actions so far to counter the effect of the missing
Maxwell pension money have smacked more of damage limitation.
It has provided #2.5m to help maintain pensions in payment, and
established a trust under Sir John Cuckney to try to persuade those in
the pensions industry and advisers who benefited from Mr Maxwell's
empire-building to help make up the missing money.
More important, it is implementing the provision in the Social
Security Act, 1990, which makes a company liable for any deficiency in
its pension fund.
The Commons Social Security Committee has already had a crack at
suggesting changes to pension regulations, and its views will no doubt
be considered by the Goode Committee.
The nub of the problem is that it is not certain exactly who the
assets of the fund belong to -- the employees and pensioners, or the
employer, or both. The trust laws governing this date back to the Middle
Ages and urgently need updating. The trustees' duty is to the
pensioners, present and future, but in practice the firm's directors
often make up the majority of them.
Furthermore, the distinction between the firm's money and the fund's
has become blurred. Pension contribution holidays by firms taking
advantage of an actuarial surplus in their pension funds are a common
occurrence, and takeover bids have been partly financed through the
bidder company absorbing the surplus in the target company's fund. So
the employer has a financial interest in the fund.
The existing Occupational Pensions Board is supposed to have a
watching brief over company pension schemes, but has so far been pretty
ineffective, partly through lack of adequate funding. The committee
proposed that the board be beefed up to take a more active supervisory
role, particularly to authorise trustees.
However this would present a formidable logistical task, given that
there are 400,000 company schemes operating at present. There would also
be the sheer difficulty of finding suitable candidates in sufficient
numbers.
The problem could be overcome by using more employee and union
representatives who would at least be independent of the employer so
long as they were not intimidated by him -- as they would have been had
Mr Maxwell been their employer.
This might at least enable employees and pensioners to get more
information about their fund. Stonewalling or patronising condescension
has too often been the reaction of trustees to requests for information.
The committee said that funds should be required to produce annual
reports within seven months of the end of their ficancial year, giving
details of the assets of the fund and where they are held, to hold an
annual meeting for members to attend, and to supply members with audited
statements of their personal stake in the fund.
When members know this, the pressure will be on to improve transfer
values, as at present employees who remain with the same company to
retirement are subsidised by early leavers.
The committee had several recommendations for auditors. It suggested
that the fund's auditors should be different from the auditors used for
the firm's accounts and that they be obliged to get independent
verification for the information which has to be supplied for the fund
to be approved by the Occupational Pensions Board. All this seems
sensible but there are problems.
For example, a single auditor for both the company and the pension
scheme is more likely to spot malpractice by the company. Auditors are
likely to be unhappy about assuming a regulatory as well as supervisory
role.
No-one seriously questions the need for revamped pension laws, but
there is a worry in the industry that in their eagerness to ensure the
looting of a pension fund by an unscrupulous employer can never happen
again, legislators will propose draconian powers for the regulators
which might persuade employers, who already face a considerable
administrative burden from their pension schemes, to opt out or
institute money purchase plans.
At the end of the day the vast majority of schemes are honestly, even
if not always competently, run and it might be impossible to provide a
cast-iron guarantee that a determined criminal can never again defraud a
pension fund.
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