Overcautious advice is preventing pension scheme trustees from making important rule changes to their schemes, claims First Actuarial.
The actuarial consultancy claims the “defensive consultancy” attitude of advisers is stifling change and innovation in schemes, and acting as a “major stumbling block” for trustees who need to make difficult decisions in order to keep the scheme running.
Hilary Salt, director at First Actuarial, says for example Section 67 of the Pensions Act 1995 specifically allows schemes to change past service benefits with the consent of members.
She says: “This should be very helpful and lead to some creative thinking, but in practice it is hardly ever used.”
Although the issue is one which is highlighted in the recent consultation paper for the rolling 'Deregulatory Review of Private Pensions', where the Department for Work and Pensions (DWP) asks whether the way the section is currently drafted is too complex or stops trustees from making improvements to the scheme.
At the moment, however, Salt says some advisers seem “incapable of taking the step back necessary to consider the overall good of the scheme rather than the narrow sectional interests of one group or another - including the interests of trustees frightened of being sued”.
In particular, she warns legal advisers seem to be very keen to point out trustees can be sued as individuals for their decisions, when in reality while this could happen, Salt says it is very unlikely in cases where a trustee is clearly acting for the good of the scheme.
She adds: “We don’t believe trustees should be given legal indemnity because it is important they are responsible, but there needs to be some perspective over the chances they will get sued.”
As a result, First Actuarial says it welcomes the ongoing Review, announced in the first pensions white paper last May, which is considering ways to reduce the administrative burden for employers offering workplace pensions while also protecting the interests of scheme members.
And in its response to the consultation, which closed on 6 April, the firm also highlights the proposals to create a more principled based approach to some areas of administration, such as disclosure of information.
Salt says: “Members of schemes are entitled to good information but it is the trustees who are best placed to decide how it should be presented and distributed in the most effective way possible.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7034 2681 or email [email protected]IFAonline
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