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.
What’s Wrong with Personal Pensions?
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!
But Why Independent Trustees?
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