Pensions Act 1995

On Sunday 6 April 1997, most of the provisions of the Pensions Act 1995 (the Act) and a deluge of regulatory requirements covering many aspects of pension scheme governance, came into force.Pension scheme trustees are now required to have implemented a range of procedures and safeguards in order to comply with the new legislation.

This article outlines a few of the changes which are likely to have the greatest impact on practising solicitors.CONTRACTING OUTThe contracting out regime for final salary schemes has been radically altered.

Guaranteed minimum pensions will cease to accrue, and in order for a final salary scheme to be contracted out after 6 April, 90% of its members must receive benefits at least as good as those of the new 'reference scheme'.

Those whose benefits are less good must not be an identifiable.MEMBER-NOMINATED TRUSTEESOne third of the trustee body of most schemes must now be nominated and elected by the scheme members.

The employer may prefer to opt out of the statutory arrangements for appointing membe r trustees -- if so, the employee has only until 5 May 1997 to notify the trustees, and six months (from 6 April 1997) to obtain approval from the members for its own proposals.

Otherwise, the trustees must implement the statutory arrangements by 6 October 1997.

Legal input is likely to be required in ensuring that the complex regulatory requirements are properly implementedADVOSERSAppointment letters should be in place for the scheme auditor and other relevant advisers, including any professional (such as the legal adviser) on whose opinion the trustees intend to rely.

One area of concern already apparent is the inclusion by some professional advisers of 'caps' on their liability for negligence in such appointment letters, which has a knock-on effect on the other scheme advisers.DISCLOSURE OF INFORMATIONThe basic information which must be given to members and prospective members of the scheme is extended.

All the required information must be given to new members within two months of joining the scheme, so in practice, a revised booklet or an appendix detailing the extra information should be available by 5 June 1997.

Legal advice may be required in preparing the new booklet or appendix, to ensure compliance with the regulations.INTERNAL DISPUTE RESOLUTIONTrustees are required to implement a two-stage procedure for dealing with complaints from members and other beneficiaries of the scheme.

The procedure must allow for an initial review by a person appointed by the trustees, with an appeal stage to the trustees.The regulations relating to the Pensions Ombudsman will normally restrict his jurisdiction over complaints so that the internal procedure must have been completed before a complaint is made to him.

Legal input may be required at either of the two internal stages in order that complaints do not go any further.SCHEME AMENDMENTSUnder section 67 of the Act, schemes may not be amended after 6 April in a way which could affect retrospectively any accrued right of any scheme member, unless either the scheme members consent to the amendment (which will generally be impractical) or the scheme actuary certifies that the amendment in question is not one which will have this effect.Where trustees rely on announcements to members as being effective to amend the rules of the scheme, and only make a consolidating amendment at a later date, scheme actuaries may be unwilling to give the relevant certificate.

This is because of the risk that the announcement has not in fact overridden the previous rules, so that rights have continued to accrue.

Legal advice may now be required to formalise amendments on a more frequent basis.WHISTLE BLOWINGMany schemes will not have been able to comply with all the statutory requirements by the 6 April deadline.

In theory, therefore, scheme advisers should be blowing their whistles to the new regulator, the Occupational Pensions Regulatory Authority (OPRA), which has a wide range of powers to deal with matters reported to it, ranging from instigating investigations to imposing suspensions and civil penalties.Section 48 of the Act obliges the scheme actuary and auditor to make written reports to OPRA if they have reasonable cause to believe that there is non-compliance with any duty relevant to the administration of a scheme which is imposed on the trustees or certain other people acting in connection with the scheme.The only limitation is that these advisers need only make a report if they believe that the failure to comply is likely to be of 'material significance' to OPRA in the exer cise of its functions.

OPRA's guidance on whistleblowing indicates that it sees its prime role in the early days as helping to achieve compliance, not applying sanctions as a matter of course.

It encourages schemes which are fully committed to complying with the new requirements, but have had practical difficulties in implementing the detail by 6 April, to draw up a 'compliance status' report (including, if possible, confirmation that scheme assets and members' interests are not being prejudiced by any breaches) and an action plan ensuring full compliance within three months.

Legal and other professional advisers also have the power (although no duty) to make reports to OPRA.

Indeed, the OPRA Website notes that 'it is actually the people who have a power to whistleblow, rather than a duty, who are most likely in practice to hear earliest about breaches'.

OPRA is therefore seeking advice on how to establish working procedures which encourage these advisers to make reports 'whenever this seems to be the best solution', whilst recognising that this is a difficult task.

It remains to be seen how this will operate.PROTECTING THE TRUSTEESFinally, pension scheme trustees who fail to comply with their statutory obligations are now exposed to penalties ranging from fines to imprisonment for some offences.

The Act provides that it is unlawful for trustees to be indemnified out of scheme assets for such penalties.

Trustees would therefore be well advised to review any indemnity provided by the employer and the terms of any insurance policy, to ensure that they are protected against these liabilities.