Stamp dealer takes adviser to task over admin issues

Rectifying issues in scheme administration is a common feature of the pensions industry despite efforts by the Pensions Regulator to improve governance.

Earlier this month Pensions Expert reported that Findel Group Pension Scheme paid more than £2.3m in past-service costs to make good a member-benefit equalisation exercise that was implemented incorrectly.

Stanley Gibbons’ most recent annual report details the legal costs incurred by the move to recover the costs associated with the administrative issues.

It paid £0.9m in the year ending March 31 2015 and £0.8m in the 15-month period ending March 31 2014 in relation to “legal action for recovery against the professional advisers in respect of the Company’s defined benefit pension scheme”.

The administrative issues came to light in 2012 when the company instigated an exercise to redraft and consolidate the trust deed and rules.

According to the company’s 2013 interim report, the exercise shed light on five administration issues, including the “equalisation of normal retiring dates and the reduction in the accrual rate”.

In that report, the company made a prudent assessment that the combined impact of those issues would result in a £1.4m increase in the scheme deficit.

It has gone on for some time. The London lawyers don’t come cheap, there’s a lot of work to exchange information on both sides

Donal Duff, Stanley Gibbons

Donal Duff, financial director at Stanley Gibbons, said “ineffective documentation and… administration issues” had led the company to litigate against a former adviser but the case had now been settled. He added: “It has gone on for some time. The London lawyers don’t come cheap, there’s a lot of work to exchange information on both sides – the fees are all justified.”

The terms of the settlement are not known.

Duff said the company has since appointed a new adviser and added an independent trustee to its scheme board.

Reaching settlements

Speaking generally about the costs associated with pensions litigation, David Molyneux, associate in law firm Squire Patton Boggs’ litigation team, said parties in all types of litigation are encouraged to settle early where possible.

“The costs associated with pensions litigation, like other complex types of litigation, can often be an important factor in parties deciding to settle, whether through negotiation or mediation at an early stage or certainly before trial,” he said.

Suzanne Padmore, senior associate at law firm Burges Salmon, said in some scenarios parties agree to pay their own costs as a way to bring proceedings to a close.

She added: “It might be that the claimant says, ‘Okay we will bear our own costs’, particularly because if the party pays their own costs there isn’t any requirement for a detailed assessment of costs.”

Anne-Marie Winton, partner at law firm Nabarro, said employers were often unwilling to front the costs of scheme consolidation and redrafts.

The costs associated with pensions litigation, like other complex types of litigation, can often be an important factor in parties deciding to settle, whether through negotiation or mediation at an early stage

David Molyneux, SPB

She added: “In an ideal world [deeds] would all be consolidated into one but that takes a fair bit of time – not all employers will pay for the trustees’ advisers to do that.”

Winton said issues with the equalisation of benefits to members remained a widespread problem and issues were often identified when schemes changed advisers. She urged smaller schemes in particular to seek advice about their scheme documents.

“Don’t be complacent, don’t think there are no problems in your scheme,” she said, adding: “There are still hidden risks built up within occupational pension schemes.”

She added any historical inaccuracies had the potential to cause significant problems for employers’ balance sheets.

“If you’ve been underpaying someone, that’s adding to the liability for the employer and they need that like a hole in the head,” she said.

Alex Hutton-Mills, managing director at covenant specialist Lincoln Pensions, said the appointment of independent trustees to scheme boards would reduce the chances of problems escalating over time.

He said: “Professional trustees effectively now plug skill gaps on trustee boards both for governance and for specific skill sets.”

Hutton-Mills said many larger schemes have already implemented a cyclical review structure to assess board effectiveness and governance, which includes scrutiny of advisers.