Trustees should not have the power to decide the future of a pension scheme, says the Association of...
Trustees should not have the power to decide the future of a pension scheme, says the Association of Consulting Actuaries, as this could threaten the financial health of some companies and in some cases even lead on to their insolvency.
This comes in a response to DWP's amended consultation paper - "Occupational Pension Schemes (Winding Up and Deficiency on Winding Up etc.) (Amendment) Regulations 2003" – that suggests a shift towards more responsibility for trustees.
DWP's initial proposal only required full buy out of scheme benefits where a solvent employer had chosen to wind up a scheme.
But in the amended version, the employer will aslo be forced to pay full buy out costs in case a trustee incited the wind up – an action that could force the organisation into liquidation – the ACA says.
The Association is worried that the trustees of a solvent company could choose to wind up the scheme to assure members' benefits, and that any employer top-up payments in these circumstances would exclude increases to pensions in payment in order to limit the damage to the employees.
The ACA says: "We believe the regulations should limit the statutory power of trustees to put a scheme into wind up to circumstances where the employer's ongoing contribution would be expected to lead to a deterioration in the level of benefit security."
"This would limit the circumstances in which the power could be used, prevent it from being used improperly as a bargaining lever, and take away trustees, responsibility of having to actively consider whether to use such an extreme power."
Taking another viewpoint is Stewart Ritchie, pensions development director for Scottish Equitable, who says he can't see how one could have a "different stand to whom triggers the wind-up".
With employers paying less if the scheme is winded up by a trustee, this could lead to a "manufactured" situation, he warns, as two-thirds of the trustees are nominated by the employer.
According to trustees, this problem has to a large extent been created by the 'bridging gap' between June 6 this year - when the new rules, demanding all solvent employers to meet a scheme's buyout costs in full, came into force - and 2005 when the Pension Protection Fund is expected to be launched.
60+ £300bn ISA savings
Total funds on list rise from 26 to 58
What made financial headlines over the weekend?
Q2 net sales dropped almost 50%