PENSION RIGHTS AFTER THE PENSIONS ACT 1995 BY RICHARD NOBLES
THE
INSTITUTE OF
EMPLOYMENT RIGHTS
Richard Nobles is a senior lecturer in law at the London School of Economics who specialises in the law of Pensions. He is the author of Pensions Employment and the Law (OUP 1993) and has written numerous articles on pension law for academic law journals such as the Industrial Law Journal and Modern Law Review. He was also the author of an earlier publication by the Institute of Employment Rights Controlling Occupational Pension Schemes (1992). This publication, like all the publications of the Institute, represents not the collective views of the Institute but only the views of the named author. The responsibility of the Institute is limited to approving its publication as worthy of consideration within the labour movement.
ISBN 1 873271 50 6 May 1997 published by the Institute of Employment Rights 160 Falcon Road London SW11 2LN 0171 738 9511 fax 0171 738 9577 e-mail ier@gn.apc.org designed by Megan Dobney 0181 761 7532 printed by Upstream (TU) 0171 358 1344 ÂŁ6 for trade unions and students ÂŁ20 others THE
INSTITUTE OF
EMPLOYMENT RIGHTS
contents executive summary
iii
CHAPTER 1
introduction outline
1 2
CHAPTER 2
the pensions promise a. the employees’ view b. the employers’ view c. the Goode Committee’s view of the promise
3 3 4 5
CHAPTER 3
pensions rights after the Pensions Act 1995
protecting members’ benefits
ii
8
a. partially indexed benefits 8 b. making pensions secure? 10 i. the minimum funding requirement 10 ii. the employer’s debt 12 iii. the compensation scheme 13 c. the protection afforded by trustees 14 i. more independent trustees 14 ii. member appointed trustees 15 summary 18 d. enforcing members’ rights 19 i. enforcing rights under the Pensions Schemes Act 1993 and the Pensions Act 1995 the role of OPRA 19 ii. enforcing rights under trust law 20 enforcing trust law through the courts 20 access to information 20 costs 21 enforcing trust law through the Pensions Ombudsman 23 CHAPTER 4
conclusion
26
endnotes
28
executive summary
I This booklet examines the rights of members of occupational pension schemes in the light of the Pensions Act 1995. I Despite the optimism for radical reforms generated by the Maxwell scandal, the new legislation fails to give effect to employees’ understanding of pension funds as their deferred pay. That this should occur is not surprising. So long as the provision of occupational pensions remains voluntary, the perceived willingness of employers to continue to provide occupational pension schemes to their employees provides a major constraint on any attempt at reform.
I The effectiveness of the Minimum Funding Requirement, and the protection afforded to members for all risks not covered by the Compensation Scheme, will depend on the independence and competence of scheme trustees. Under the Pensions Act 1995, trustees are required to exercise a more independent role. In addition, members are given a statutory right to choose a minority of scheme trustees if sufficient of them object to the proposals for selection made by their employer and the scheme trustees.
protecting members’ benefits
I The Act is based on the report of the Goode Committee, whose recommendations were intended to ensure that scheme benefits would be properly secured and paid as promised. However, the Pensions Act does not offer the degree of protection which they envisaged.The new Minimum Funding Requirement will not ensure that schemes have sufficient assets to meet their liabilities on winding up. The new Compensation Scheme will not cover all risks, and will not restore scheme assets to the level required to pay the promised benefits.
iii
pensions rights after the Pensions Act 1995
I The ability of scheme members to monitor the performance of scheme trustees, and to prevent breaches of trust, remain severely limited. They do not have a right to the information necessary to reach an informed view of whether the trustees are acting in their interests. Nor can they afford to enforce scheme rules through applications to court. In these circumstances, the enforceability of scheme members’ rights is dependant on the role played by the Pensions Ombudsman.
iv
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