Pippa Stephens considers how the City & Guilds Pension Plan and others have improved their governance to reduce the risk of litigation over drafting errors
Schemes have been urged by legal experts and independent trustees to improve their record-keeping, and bolster the role of the scheme secretary, to protect themselves against future liability for scheme errors.
Well-taken minutes at scheme meetings can reduce the risk of litigation between managers and their advisers such as that being seen over past mistakes made around equalisation changes, say experts.
Such mistakes were made when unifying the retirement ages of male and female scheme members, in the 1990s, and can prove costly to schemes if the changes were not made in accordance with the regime.
Schemes have also been called to review their articles of association to make sure they reflect what has been agreed at board level, and to check that all sub-committees have been properly empowered, to improve their governance safeguards against such mistakes.
When such mistakes have been made, accurate record-keeping and a clear division of responsibilities can bolster the position of scheme managers and trustees should claims over those mistakes ever reach court.
Scheme experience
One scheme which has improved their governance in the light of the concern over equalisation is the City & Guilds plan, led by pensions manager Colin Machin.
Machin said he had changed the way the scheme was governed, following widespread press coverage of the problems surrounding these changes.
He said: “We have a risk register we keep up to date every meeting and we just make sure there are no issues between trustees so we record all the details from meetings."
Machin also provides a website with all the scheme documents and meeting minutes available for the trustees and advisers, independent from the company. A record of all legal advice taken is also available on the website.
He said in times of uncertainty, such transparency would be imperative in providing the reasoning behind each of the trustees’ decisions.
Employing a professional secretary responsible for minutes available for the trustees to comment on after each meeting also bolsters the strength of the scheme’s governance procedures.
Last month, Pioneer GB successfully applied to court for the rectification of a 15-year-old mistake in its scheme documentation, avoiding the cost of a full trial.
The success of the application hinged on Pioneer showing a record of effective communication with scheme members, including annual benefit statements.
The summary judgment demonstrated the money schemes can save from avoiding a full trial through investigating and pursuing past errors.
Philippa James, partner at Mayer Brown, said it was good practice for a clear record to be kept so if it transpired the rules did not reflect what the trustees agreed, it could be referred to.
Should the case reach court, such clarity becomes vital. Having transparent methods of recording and collating agreements in quarterly meetings and the covenant deed from the outset will also negate the need for legal assistance, should disputes between trustees and advisers arise.
She said: “There aren’t that many rectification cases, so the Pioneer case has been quite useful to see how the court would approach rectification,” she said.
Reviewing your decision-making
Michael Clark, head of Pensions Trusts at Capita Trust Company Ltd said the role of the scheme secretary was “extremely important”, and frequently underrated, in light of these challenges.
Clark said schemes should make sure they can answer the following questions in practising good governance:
When delegating decisions to sub-committees, what are the terms of reference?
Do the sub committee take decisions or make recommendations which the full board of trustees agree on?
If the full board agree, is it the majority or is it unanimous? If it’s a majority, is it a numerical majority or a majority on both the employer nominated and member elected?
If you’re a trustee company, are your articles of association up to date – do they also reflect what you’ve just agreed?
If you have a sub-committee in place, do the articles actually allow this?
Does the sub-committee have the necessary power to make its decisions?
What is the protocol for delegating procedures for members’ benefits, for example on the death of a member?
