Connected Research

Union policy research in the 21st century

Do trustees have a role in defending final salary schemes?

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TUC General Secretary Brendan Barber used his speech to yesterday’s TUC annual pension trustee conference to ask trustees to guard against employer attempts to use the recession to take a ‘slash and burn’ approach to pensions and also to join the TUC in speaking out against the ‘populist and deliberately misleading’ campaign being run against public sector pensions by some elements on the right.

Of course, trustees do have a role in protecting final salary schemes – after all, they have a statutory duty to act in the interests of scheme members – so the title of this post is a little provocative. It comes, however, from anecdotal evidence obtained at yesterday’s conference that some trustees (and even then, those at a TUC trustee conference) may not be able to stand up to employer requests for scheme closures, with some arguing that scheme closure decisions were for the sponsoring company’s HR Director to determine.

In some circumstances, a closure of a pension scheme, either to new members or for future service, may be judged to be in the interests of scheme members as a whole (including both current members and deferred and existing pensioners) where the strength of the employer covenant (a jargon phrase implying essentially the employer’s continued willingness to stand by the scheme) has been fundamentally weakened.

Nevertheless, it is clear that trustees are able to exercise their power to act in the interests of scheme members only in circumstances in which they are able to realise their formal independence from the company. This means several things:

– member-nominated trustees must form 50% of the trustees of occupational pension schemes. The legal requirement for trustee boards to be composed of one-third member nominees needs to be superseded in favour of the best models available in the private sector where one-half of trustees are member-nominated. Where member-nominated trustees are in a minority, they are both more easily dominated by the arguments of scheme sponsors as well as being more easily out-voted

-at the same time, member-nominated trustees must be plugged securely into trade union networks of advice and support so that they can fulfil their independent role more easily. Being a trustee is a challenging role in which experience of representing members, or of being located within such independent structures , provides a clear advantage in terms of how quickly trustees can be effective in that role. Continual talk in the media of how private sector defined benefit schemes are in ‘terminal decline’, in the context of the herd mentality that already characterises employers’ reaction in this regard, both increases the pressure on trustees as well as the need for them to be able to exercise their independence

– training must be provided on a continual basis, to new trustees and to existing ones alike, on what are trustees’ fiduciary duties (to act in the interests of scheme members) and how these can best be observed in these times.

Exercising trustee independence should help to protect schemes from unwarranted closure in the circumstances that Brendan Barber was addressing. In those schemes that do remain open, either to new employees or to future accrual, it is not too late to ensure that trustees can play the role that, if employers are taking advantage of the cover of the recession, they will increasingly be asked to undertake.

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Written by Calvin

01/07/2009 at 4:47 pm

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