Government seeks to send in pension protectors

As more funds are sold to private buyers, new powers are proposed for the regulator in appointing trustees
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The Independent Online

The Government wants greater powers to appoint trustees to the boards of UK company pension schemes. A recent amendment to the Pensions Bill – set for its third reading in Parliament at the end of March – will expand the powers of the Pensions Regulator to parachute in its own trustees.

The Government says the change is vital to protect the interests of scheme members in response to the increasing number of pension funds being sold by employers that are often keen to save on administration costs. In the past three months alone, 75 schemes, with assets totalling £1.9bn, have been sold to specialist buyout firms.

The amendment proposed by Pensions minister, Mike O'Brien (right), will lower the legal test that the regulator has to pass before appointing a trustee. Under current law, it can only do so when it can prove the move is "necessary"; the new plan is to change the test to "reasonable".

The move was sparked by the sale of Telent (formerly Marconi). There had been concerns that the buyer, the Pensions Corporation, wanted to get hold of potential surplus funds previously set aside for the benefit of the scheme members, and that there weren't enough checks and balances in place. The regulator appointed three trustees to the board of the Telent scheme, but these were challenged at independent arbitration by the Pensions Corporation. While the regulator won, the case was seen as a shot across the bows.

"It's not just Telent which concerned us. We are looking at what is happening throughout the pensions buyout industry," says a spokeswoman at the Department for Work and Pensions (DWP).

"The priority has got to be protecting scheme members' interests. If the regulator feels that trustees have to be appointed, that's what should happen."

Senior officials at the DWP say they have been "pleasantly surprised" by the "positive response" to their proposal in the City.

Nevertheless, some in the pensions buyout sector have concerns about how such increased powers will work in practice. In particular, they question the calibre of trustees that could be appointed.

"The basic idea is sound but the devil is in the detail," says Dawid Konotey-Ahulu, formerly at financial giant Merrill Lynch and now an adviser to pension schemes.

"In a buyout, the trustee's job becomes very specialist. They have to understand the financial products that the buyout firm intends to use to boost returns on scheme assets, and the risks that are being taken. They must also be able to negotiate with the new owners.

"Presuming this move is going to lead to more regulator appointments, do the people set to be appointed have the right skills? Not all trustees are created equal," he says.

In response, the Pensions Regulator says it has nearly 60 qualified trustees on its books with "a wide range of skills and experience" – more than enough to cover the sector.

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