There's red tape round our cash

Pensions: The shadow cast by Maxwell over occupational schemes is now being lifted, writes Neil Baker

The Maxwell scandal led to many people thinking twice about making contributions into company pensions, even though it has now resulted in a root and branch shake-up of the pensions industry.

Far-reaching legal reforms, imposing safeguards on pension schemes and giving new rights to scheme members, come into force at the start of next month.

The Pensions Act will create the Occupational Pensions Regulatory Authority(Opra). Its job is to make sure that pension schemes follow the rules. It can suspend or remove pension scheme trustees, wind up schemes and apply for injunctions to prevent the misuse of pension scheme assets.

The accountants who audit pension schemes will have to tell Opra immediately if they spot wrongdoing.

Other people involved in pension schemes will be encouraged to blow the whistle and will be given some legal protection if they do.

The Act will increase the powers and responsibilities of the trustees who look after the assets of company pension schemes. The trustees, not the employer, will appoint the scheme's auditors and actuaries. Bank accounts will have to be separate. At least one-third of the trustees will have to be members of the pension scheme, usually employees or former employees. Trustees who break the rules can be sued and prosecuted.

To make sure that the pension fund always has sufficient assets to meet its liabilities, the Act introduces a new minimum funding requirement. The trustees will have to ensure that the scheme's solvency is checked regularly and that the employer makes sufficient contributions into the scheme to keep it solvent.

If the pension fund cannot meet at least 90 per cent of its liabilities, the trustees have to put an action plan in place to get it back up to 100 per cent within a certain period.

The trustees also have to agree a payment schedule in which the employer sets out how much should be contributed to the pension fund and on what dates. If a schedule cannot be agreed, the trustees have to determine the schedule. If payments are not made on time, the trustees have to tell Opra. The employer is guilty of an offence and can be fined if contributions deducted from employees' pay are not put into the pension fund on time.

By April, the trustees should have introduced an internal dispute resolution procedure to deal with disagreements with pension scheme members, prospective members, widows, widowers and dependants.

The dispute procedure must give complainants the right to a decision from someone appointed by the trustees and the right to have the trustees reconsider the matter if they are still not happy.

Disputes that cannot be resolved internally can be taken to the independent Pensions Ombudsman. This post was set up seven years ago, but the Ombudsman's role is being expanded by the new laws. The Ombudsman can decide to hold an oral hearing and, if the dispute means that benefits have not been paid, he can award extra interest.

The Pensions Act also sets up a new compensation scheme, in case the safeguards fail. The compensation scheme will be run by a board of government appointees and will only pay out in limited circumstances, such as when an employer has gone bust and stolen pension money on the way.

It will ensure that people already collecting their pensions continue to get paid and that employees are compensated. The compensation will be financed by a levy paid by all occupational pension schemes.