Firms authorised by the Law Society to conduct discrete investment business (DIB) will have felt the impact of the requirement to undertake a review of past pensions business.

The Law Society has issued two mandatory Council statements in respect of past pensions work and these were distributed to all firms known to have conducted DIB.

Firms which have identified cases as priority matters must proceed to review the transaction in accordance with the detailed guidance set out in the annex 2 document to Council statement C.The initial targets as set out in annex 2 for the completion of the review have not been met by the industry as a whole due to a number of factors including delays in the provision of necessary information by occupational pension schemes and problems encountered with software being written for the purposes of loss assessment calculations.Everyone involved in the industry is aware that the government attaches the highest priority to the conclusion of the pensions review.

This has been widely reported in the press.

In the light of this, both the Securities and Investments Board (now the Financial Services Authority) and the Law Society are taking action to ensure that case reviews are completed and redress made (where applicable) as a matter of urgency.

The Society now expects all solicitors' firms to have completed their reviews by 31 December 1997.It is imperative at this stage of the review that firms devote sufficient resources to ensure that reviews are completed and any claims are settled by redress being paid to clients.

The annex 2 guidance at paragraphs 202 and 802 states that firms should 'allocate a sufficient number of people and adequate financial resources to handle the number and complexity of cases to be reviewed.' Sufficient resources may involve the use of third parties, for example actuaries or independent financial advisers to assist with any loss assessment carried out.The review is broken down into a five stage process involving:-- identification of priority cases-- gathering information in respect of the transaction-- the carrying out of compliance assessments and/or carrying out loss adjustments-- if a loss occurs in respect of the transaction then a firm must proceed to analyse the cause of the loss-- if the loss is linked to the non-compliance, the firm must move to compensate the client by way of redr ess.Firms should by now have completed the identification stage -- any outstanding matters need to be clarified as a matter of urgency.

The monitoring and investigation unit (MIU), when carrying out an inspection, will expect to see the identification stage fully documented as required by paras 108/711 in annex 2.Delays have been experienced by firms in relation to the 'gathering information' stage.

This has arisen in some cases because of the inability to obtain the data required to carry out the loss assessment.

Occupational pension schemes have been unable to cope with the sheer scale of enquiries and the Securities and Investments Board (now the Financial Services Authority) issued amended guidance at the end of 1996 which in turn the Society released to the profession in January this year.That release was entitled Simplifying the Pensions Review and was issued in three parts containing in part I a statement of policy, in part II guidance and model questionnaires (to be sent both to clients and occupational pension schemes) and in the schedules to part II, standard data for public sector schemes.

The simplified guidance in general allows the use of standard data where appropriate as a means of reducing the amount of information the firm must seek from the occupational pension scheme or the client.Under the review, firms have the choice of carrying out compliance assessment or loss assessment first.

The compliance assessment involves a series of tests which vary depending upon the category of the client.

The number of tests is reduced if the client can be shown to be either 'insistent' or 'execution-only.' These specific tests in the guidance must be applied and fully documented -- the MIU expects to see documentary evidence of compliance on inspections.

It is insufficient merely to assert compliance with the Solicitors' Investment Business Rules 1988/1990 without following the specific tests and applying them to the clients' transactions.Again when carrying out an inspection the MIU would expect to see these processes fully documented.The loss assessment involves carrying out detailed calculations in order to compare the capitalised values of the personal pension fund and the occupational scheme the client left, or, in the case of a non-joiner, failed to join.

The assessment will vary depending on whether the firm has to calculate 'actual' loss, where the client has died or retired or 'prospective' loss where death or retirement is yet to occur.Computer software has been developed to assist firms in carrying out the loss assessments.

However, delays have been experienced due to the software being released in phases and the phase dealing with loss assessments not being made widely available until the beginning of the year.

A number of firms have also experienced difficulty in using the software.

The Society recommends that firms use the services of an actuary unless the firm has specific in-house expertise to carry out the assessment.

Again, it is in this field that regard must be had to the issue of 'sufficient resources' under paras 202 and 802.

A list of actuaries is available from the Faculty of Actuaries or from the MIU.After having carried out the loss assessment, if the client is deemed to have suffered an actual loss or is a victim of a prospective loss, then the firm must proceed to carry out the compliance assessment if this has not already been done.

The firm should then analyse the cause of the loss since redress is only due if a loss has been suffered, the sale is non-compliant and the los s is caused by the sale being non-compliant.The key question at this stage of the review is 'if advice and information which complied with the regulator's rules had been given by a competent firm, would the investor have acted differently?'If a link is established between the loss and the non-compliance then the firm should move to ensure that the client is compensated by way of redress.The Solicitors Indemnity Fund will need to be consulted when a firm is considering the settlement of a claim.

Jes Salt co-ordinates pensions claims and can be contacted at the Solicitors Indemnity Fund; DX 46601 Barbican; tel: 0171-566-6000.As indicated, the Society expects all solicitors' firms to have completed their reviews by 31 December.

To this end, if the Society considers that a firm is applying insufficient resources to completing the review then the firm will be referred to the Compliance and Supervision Committee of the Council of the Law Society for possible disciplinary action.

If a firm requires guidance in order to ensure that reviews are completed by the deadline, contact the Society's pensions team as a matter of urgency.

Firms can either speak to Karen Nokes-Anderson, Bob Copeland or Richard Lawes.