Watchdog should tread carefully

Pensions Act: A series by Stephanie Hawthorne

The regulation of company pension schemes has been a contentious subject since Robert Maxwell, the media tycoon, tumbled off his yacht in 1992 with more than pounds 400m of his employees' pension funds unaccounted for.

His death and the much-publicised fate of the Maxwell pensioners led to the Pensions Act and with it the formation of the Occupational Pensions Regulatory Authority (Opra), the regulatory body for more than 200,000 occupational schemes. Opra has draconian discretionary powers with a punishment for every transgression.

Harriet Dawes, a partner at Lovell White Durrant, pensions law experts, said: "Opra is being set up as a third line of protection for members and schemes." The trustees have the primary responsibility for seeing that all is well. They will rely on expert advisers, including actuaries and auditors, who must "whistle-blow" to Opra in certain circumstances if the rules are broken.

Scheme members who are worried that something is wrong can contact Opra or talk to Public Concern at Work. This is a charity which giveslegal help to people who are worried that something iswrong in their workplace.

Opra's powers are statutory and are laid out in the Pensions Act. It has inspectors similar to those of the Department of Trade and Industry, who will be able to obtain warrants to enter and search premises to examine people and require them to produce documents and publish reports of investigations.

One of Opra's chief duties will be financial supervision. It must be informed if there are failures to comply with the requirement to pay scheduled pension contributions, if the minimum funding requirement - the amount of assets each fund must have should it be wound up - is not met and in other circumstances.

Opra can remove trustees for any serious or persistent breach of the rules and appoint new ones. It can even wind up a pensions scheme. Indeed, its very powers lead some pensions experts to warn that the watchdog should not come down too hard on errant schemes, at least for a while.

Stewart Ritchie, a pensions expert at Scottish Equitable, says: "I hope it will not throw the book at people whose only crime is to inadvertently fail to satisfy some detail of the immensely complex pensions law. Unless Opra can perform its functions efficiently and effectively, the trend away from occupational to personal pensions can only accelerate."

Similarly, Oliver Rowlands, director of Alexander Clay trustee services practice, warns: "Opra must adopt a sensitive approach if the new system is to work, otherwise trustees may simply call it a day."

John Hayes, Opra chairman, is prepared to let the Act, which came into force last month, settle down for a while before baring his teeth.

He said: "People will make mistakes, particularly in the first six months to one year and we understand that. These will not necessarily lead immediately to civil penalties. Any sign of dishonesty will be treated with the utmost severity."

If individuals want to secure their pension rights, the Occupational Pensions Advisory Service (Opas) and the Pensions Ombudsman will remain, after the trustees, their second port of call.

This expensive new layer of protection will be paid for by a levy of members so the pension scheme will have to foot the bill. From April 1997 levies will be significantly larger and payable annually rather than once every three years. Andrew Scrimshaw, pensions research manager, Sedgwick Noble Lowndes, says that from 1997 there will be a general levy and a compensation levy (largely post-event) to pay for Opra and the compensation board.

Personal pensions will be exempt from the compensation levy and pay a smaller general levy because they are not covered by Opra. The Government anticipates that the general levy will bring in pounds 12m a year. Mr Scrimshaw warns that levies could be expected to increase at least sevenfold and even more for pension schemes with a high percentage of pensioners. If it helps avoid another Maxwell scandal, that may be a cheap price to pay.

A free booklet "Spotlight on Opra" and a fact sheet "A problem with your company pension scheme?" are available from the Opra Helpdesk, phone 01273 627600. Public Concern at Work, phone 0171 404 6609.

Stephanie Hawthorne is the editor of Pensions World