ICAS aims to cut risks of inexperienced pensions trustees

Published on Friday 27 April 2007 01:03

IN A bid to end the problems that can arise from billion-pound company pension schemes being controlled by inexperienced trustees, the Institute of Chartered Accountants of Scotland (ICAS) has unveiled an initiative to help manage the inherent risks.

As a result of changes in accounting and governance rules, trustees - often with limited knowledge of the business or pensions - are "calling the shots", in the words of one expert.

The fear is that trustees have such power they could put pension schemes or even companies in jeopardy. This in turn could put employees' pension funds under threat.

To address this, ICAS has produced a practical guide for trustees.

The organisation believes it is first off the mark in providing a practical response to the code of practice produced by the Pensions Regulator last year, which outlined controls and risks in company schemes.

The guide, Pensions Trustees: Assessing and Managing Risks, was put together by ICAS's pensions working party, chaired by Alan Thomson, former financial director of global technology company Smiths Group, who has had several years' involvement with company pension schemes.

Under the current regime - introduced to avoid a repeat of the likes of the Robert Maxwell pension fiasco - many senior company people have been unable to remain as trustees of their schemes because of potential conflicts of interest. They have been replaced with more junior employees or external representatives who are less knowledgeable about the business and pension and investment matters.

Thomson said: "In the past, companies set up pension schemes, the company directors were the pension trustees and they tried to balance what was good for the company with what they were doing for employees.

"This has been turned on its head and trustees are calling the shots. A serious issue is the balance of power has totally changed and trustees tell companies what they want. Pension trustees have such huge powers the existence of the company could be affected."

Thomson has personal experience of such problems, having had to stand down from the trustee board of Smiths.

Derek Scott, a member of the ICAS working party and a professional pensions trustee, said: "This is an unintended consequence of the recent Pensions Act, which stated trustees have a duty to tell their fellow trustees everything they know about the company."

As well as protecting companies and employees, the ICAS guide is also designed to reassure trustees. Trustees can be sued if anything goes wrong with a pension fund, a phenomenon becoming common in the US and emerging in the UK.

Thomson said: "What we've produced is a basic guide for new trustees explaining the different types of schemes. Billions of pounds are being managed by very inexperienced people. We have to make sure they're asking the right questions and know where to go for advice."

The guide is expected to reach thousands of companies across the UK.