Pensions law expert
Yorkshire's companies could struggle to find decent trustees for their pension schemes in the future, a leading pensions law expert has warned.
Pensions law advice
Anne Taylor, national head of pensions with law firm Irwin Mitchell, based at its offices in Queen Street, Leeds, provided some pensions law advice on the forthcoming legislation demanding much greater knowledge of trustees and imposing potentially severe penalties if they are found wanting will act as a powerful disincentive to competent people signing up.
Mrs Taylor said: "The tendency for the law to demand much wider and deeper trustee understanding has emerged gradually in recent years. Legislation and regulation has been tightened in the wake of issues such as Robert Maxwell pillaging the Mirror Group fund and people who have worked in companies such as Allied Steel & Wire for 30 or 40 years losing pension entitlements because of their firms going bust or schemes making losses on the markets.
2004 Pensions Act
"But the 2004 Pensions Act makes even more severe demands of trustees, as from April they will have to be experts in 10 highly specialist areas - including law, investment, asset allocation and fund management - plus the factors underlying them, with penalties potentially including the Pensions Regulator removing them if he deems them deficient in these respects."
Mrs Taylor said any trustee of more than six months' standing would be expected to understand all the areas in sufficient depth immediately. New trustees would have six months from the date of appointment to reach this standard.
Pension trustees advice
She said pensions trustees would be obliged to show evidence of steps taken to acquire the necessary expertise - including, from 2007, recording learning activities in returns to the regulator and letters to scheme members.
Mrs Taylor added: "The legislation will also give trustees a range of other responsibilities, such as being conversant with their own scheme documents, including the trust deed and rules, statement of investment principles, actuarial valuations, funding principles and strategic asset allocation.
"In short, the pensions trustee of the future will have to be a quasi-expert across a range of subjects, with an in-depth knowledge that would make most predecessors gasp. According to the letter of the law, they will have to know as much about things like hedge funds and derivatives as investment managers and possess a knowledge of pensions legislation rivalling that of specialist solicitors."
Mrs Taylor said there was therefore a very real danger that many people who should be protecting Yorkshire scheme members' interests by sitting on trustee committees would be scared away, with those who did feature having inferior qualifications and expertise.
She said: "The legislation could easily have the opposite effect to that intended, causing problems rather than reducing them.
"One effect of it will be Yorkshire companies spending thousands of pounds training trustees in the key areas, but even then it's doubtful they'll know enough to satisfy the new demands.
"There's a strong chance companies in the county who can afford it will also try and bypass the problem by hiring more advisers in the relevant areas, but the new legislation will still mean pension trustees having to be accomplished enough to ask the right questions of these experts."
Mrs Taylor said the new requirements should hasten the advent of professional pension scheme trustees - experts sitting on committees of several schemes and functioning in a similar way to non-executive directors.
She said only through that kind of development could the legislation work without causing major problems.
Mrs Taylor said: "One of the great faults of pension law in recent years is too much of it has been knee-jerk responses to particular events. There's always a danger of this reactive legislation proving bad in practice and this is one of the most striking examples of the tendency so far.
"I have a nasty feeling it will take at least one major mishap - such as it emerging that a high-profile scheme is greatly underfunded and well-meaning trustees have suffered extreme consequences as a result - for all concerned to realise the bar has been raised too high and we have a sizeable problem here that simply has to be tackled."
Yorkshire companies wanting to discuss any aspect of pension law and regulation can contact Irwin Mitchell's experts on 0370 1500 100.
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