e-mail Paul Lewis on paul@deadline.demon.co.uk
People who receive a pension from their old employer may be denied the right to vote for the trustees who run the scheme under new rules which start next April.
All pension schemes are controlled by trustees who are supposed to be independent and act only in the interests of the members. However, the trustees are often the directors of the company and there have been cases where they have used the pension money in the pension fund for their own purposes.
That happened most recently and notoriously in the case of the Mirror Group Pension Fund. The scandal only came to light after the death of Mirror proprietor Robert Maxwell in 1991. More than £200m from the pension fund had been used to prop up his ailing companies and had gone missing. The Government decided that changes in pension law were needed to try to stop such a scandal happening again. So it introduced a new Pensions Act in 1995 to tighten up a lot of the rules governing pension schemes. Among other things, the funds would in future have to be controlled by independent trustees of whom at least a third had to be drawn from people who benefited from the scheme.
Apart from protection against fraud, these Member Nominated Trustees (MNTs), elected by the members, should also help ensure that trustees take into account the views of members when they discussed changes to the rules of the scheme, the level of contributions, or what to do with a surplus in the fund.
But the actual rules are a pale shadow of what was originally intended. Companies can continue with their old rules and have no MNTs if they choose as long as the members agree. Or the company might propose its own rules about which members can be nominated to be trustees. If a company is determined to do so it is very easy to exclude retired members entirely from the trustees which control the funds which pay their pensions.
Who is affected?
The new rules will almost certainly apply to you if you are a member of an occupational pension scheme at the moment or if you have rights to a pension from an occupational pension scheme. There are three sorts of member in an occupational pension scheme.
Under the rules for Member Nominated Trustees the three kinds of member have different rights. The deferred members have the fewest; the active members the most. However, if the company decides to follow certain procedures, the retired members can be excluded entirely from nominating or voting for trustees. And it is this loophole which is worrying organisations like COPAS - the Confederation of Occupational Pensioners Associations. Derek Oakley is its chairman and he believes that the trustees of a pension scheme should always include some retired members
"Member trustees are like non-executive directors, they are there to see that the others behave properly. Only the retired members are truly independent of the company. The active members are still employees and if their boss wants something then they are much more likely to cave in than the retired member. The active members won't do anything about it because they‘d be too scared for their jobs."
Just over half of all pension schemes already have Member Nominated Trustees, according to figures from the Occupational Pensions Advisory Service. But others are resisting the new rules. And if they are determined they can do so. There are several ways in which companies can dilute the proposals. They could suggest simply carrying on as now, with the company nominees as trustees. A vote against that could be seen as a vote against the senior management who run the scheme - not exactly be a career move if you are an employee. Or they could suggest limiting the Member Nominated Trustees to active members and allowing only active members to vote for them. That would exclude retired members altogether and keep trustees closely linked to the company.
Keeping out pensioners
Whatever the company wants to do, the first stage is to ask the pension scheme members if they are happy with the proposals. The company can start this process at any time from October 6 1996 and must do so before May 6 1997. First the trustees must be informed of its plans and then the company must try to get the approval of the scheme members. It has six months to do that with an absolute deadline of October 6 1997.
The company must write to all active and pensioner members (they can include deferred members but do not have to) at their last known address. Those members then have one month to respond. If 10pc or more object then the proposals have to be withdrawn or put to a ballot of members. So the first hurdle is for members to muster 10pc of their number to object. If the company proposes to do without member trustees altogether then the active members may be counted on to raise some objection. Active members will find it easier to work together as many of them will be employed at the same place. But if the company's proposal is to have MNTs drawn from active members only, excluding retired members, then the workforce will be less likely to object.
The retired members will find it difficult to stop the proposals alone. First, they have to object in large enough numbers to muster 10pc of all members of the scheme. That could well mean getting a quarter or more of retired members to object. Second, many retired members do not keep in touch with each other and although the company will be writing to them all with its proposals it will be very unlikely to circulate any opposing views from retired members. Some companies use the handy excuse that the Data Protection Act forbids them to provide outsiders with names and addresses of retired members from their computer.
If the retired members overcome this hurdle, another is waiting for them. If company proposals are objected to by at least 10pc of members, then a ballot will normally follow. That ballot is also of both the active and retired members. The deferred members can be included if the company wishes. The issue is decided by a simple majority of those voting. So now objectors have to get at least half the members to vote against. And once more the retired members will have great difficulty in rallying their forces.
If they do succeed, they are still as far from victory as ever. If the scheme is rejected and the company runs out of time to suggest more proposals - it can carry on doing so until the deadline of October 6 1997 - then the Government will impose what it calls prescribed rules on the scheme. But these rules do do not give any safeguards to retired members. Indeed quite the opposite. The prescribed rules require the fund to give written notice of all trustee vacancies only to active members. Any nomination must be supported by an active members. And if there is a ballot, then only active members can vote. In theory, retired members could be elected through this route. But the problems are formidable. First, they must find out about the vacancy. Second, they must be nominated by a current employee. And third, they must be elected by the active members.
So why did the Government design these fall-back rules without including retired members? Pensions Minister Oliver Heald says it is necessary to have rules that can be implemented quickly.
"Well of course you've got to recognise the length of the process that would have to have gone through before you got to the default procedure, which is very much a long-stop, all the way through the procedure the active and pensioner members have an equal say. It's only at the end with this default procedure which would not be attractive to schemes but it's something which we can put in place quickly and easily."
But Derek Oakley believes that it just gives the unscrupulous company - exactly the one the legislation was supposed to control - the opportunity to evade the spirit of the rules
"So many exceptions have been made that the less scrupulous employer can use these to ensure he retains effective domination of the scheme. Where such opportunities to circumvent legislation exist, there will be no shortage of people prepared to do so."
But the Minister did give one important assurance
"It's not something which there's any evidence is likely to be widespread and we would monitor it very carefully and if there was any abuse we would change the regulations."
What happens next
Consultation with members of pension schemes can start as early as October 1996. Anyone in an occupational pension scheme will be getting some information from their employer or the trustees between October 1996 and May 1997. It may invite them to make a decision about how the new selection procedure for trustees will work.
If the proposals exclude retired members or limit their influence then it is hard to advise people how to proceed. Members' only power is to try to prevent the company's proposals going through. But if they are successful then they will be stuck with the Government's rules which discriminate against retired members anyway!
The best advice is to make contact with your ex-colleagues. Even if you only know two or three they will know two or three more and eventually you should be able to contact a reasonable number. Discuss the proposals with them and consider forming a company pensioner's association to coordinate your response. COPAS can advise on how to do this.
COPAS, 5 Park Road, Yapton, Arundel, West Sussex BN18 0JE, telephone 01243 552840, e-mail 100407.1746@compuserve.com.
December 1996
e-mail Paul Lewis on paul@deadline.demon.co.uk