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Stakeholder Pensions - Who Holds The Stake?
R F Thomas, FCA, MCT, President, The Association
of Corporate Trustees
(This
piece first appeared in ‘Pensions Week’)
(From Issue 6,January 1999)
There is a crucial development in the
DSS Green Paper. After the unhappy experience
of personal pensions, they are to be reformed, with Stakeholder Pensions largely taking
their place as the means of pension provision for those workers not already in good
occupational pension schemes.
A key principle is that Stakeholder
Pensions will be under trust rather than contract law.
Why is this?
Central to Stakeholder Pensions is
that they are to be collective. The
Government has rejected the individualist approach of personal pensions. Trust law is uniquely well suited to the
governance of collective arrangements.
A further major advantage is that
Stakeholder Pensions under trust will be compatible with occupational pension schemes. Government wants employers to have the chance of
re-branding their existing schemes as Stakeholder Pensions and wants individuals to be
able to transfer freely between stakeholder and company schemes.
Government recognises that in a trust
based scheme the trustees have control, enabling them to use their bulk buying power to
the advantage of the members in choosing (and sometimes deselecting) investment
managers, administrators and professional advisers.
The duties of trustees to act in the interests of all beneficiaries are well
enshrined in law.
High on the list of Government
concerns is security, and the Green Paper states that member security is best served by
trustees running the scheme under the disciplines of the Pensions Act and regulated by
OPRA and the Ombudsman.
The Green Paper is cruel in its
criticisms of personal pensions – high costs, their inappropriateness for those
with flexible careers, the difficulty members have in understanding them, a lack of
comparability between different kinds of personal pensions, their complex charging
structures, and the fact that the individual has no buying power. Cruel words indeed!
Government is keen that Stakeholder
Pensions should be set up by affinity groups and industry wide organisations. Not all members and employers can be represented
on the trustee board. Government feels that
independent trustees should be appointed, to ensure that rights and interests of scheme
members are put first.
The cogent arguments of breadth of
experience, understanding of compliance and objectivity also strongly favour the
involvement of professional trustees around the trustee table.
Are there enough independent
trustees? Just take a look at the wide spread
of membership in the Association of Corporate Trustees for the answer – yes!
As the Green paper states,
occupational pension schemes are the welfare success story of this country. The theme of the Green Paper is to build on this
success, using proven structures as the model for Stakeholder Pensions. Much of the framework for Stakeholder Pensions
is already in place: trust law and trustees, advisers and delegates and the regulatory
bodies. Stakeholder Pensions should become
the means whereby large numbers of people not already provided for can participate.
R F Thomas, FCA, MCT
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