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topics It never rains but it pours. 2001 was an exceptionally busy and involved year for pensions lawyers, with topics of debate changing faster than you can say “Carol Smillie”. Belying their “dull” reputation, pensions grabbed front page headlines more than once, with the unprecedented Unilever vs Merrill Lynch court case, Boots’ decision to move its whole pension fund into bonds and the continuing Equitable Life saga. Here we look at four of the most important issues affecting lawyers at the moment and the possible consequences of new developments. The move away from DB You would have had to be living in the Big Brother house not to have been aware of the number of companies either closing defined benefit schemes altogether, or at least to new entrants (well-publicised cases include Marks & Spencer, ICI, Sainsbury’s and Whitbread). The cost of providing all employees with final salary-based pensions has proved to be prohibitively high for many companies, but employers could regret switching to DC in the short term, warns Mark Catchpole, a partner at Theodore Goddard. Although it may be a case of “better the devil you know” in terms of having a fixed cost with DC, this option doesn’t allow for a contribution holiday, as DB schemes do. “Come what may, they’ve got to pay their five per cent, and there’s no possibility of stopping that unless they’re going to close the scheme in its entirety,” he says. Catchpole blames “insensitive regulation”, accounting changes and the Minimum Funding Requirement (MFR) for further encouraging the push away from final salary. “It’s ironic that the MFR should be introduced to protect occupational pensions and the end result has been a system which has driven people away from them,” he says. TUPE One company acquiring another has, in the past, been exempt from transferring the pension rights of employees thanks to the EC Acquired Rights Directive, 1977. However, following an amendment in 1998, national governments were permitted to take such matters into their own hands. This prompted the British government to issue a consultation paper, the results of which should be made public this spring. Objections from industry have already been raised, and the government has been called on to justify the need for a change. Slaughter and May partner Jonathan Fenn is concerned about the effect such a move might have on final salary schemes. “Any requirement that a transferee must provide a comparable benefit post-transfer will be most significant where the transferor operates a defined benefit scheme,” he says. “The transferee might not be prepared to take on the business, or be prepared to do so on the same terms, if it were to be obliged to provide a defined benefit scheme for the future.” The Myner’s report The set of recommendations set down by ex-Gartmore chairman Paul Myners have become synonymous with raising institutional investment standards, at the same time as being a bit of a headache for trustees. “To comply with Myners, trustees will have to consider how decisions about investing their funds are taken and to make a thorough review of their Statement of Investment Principles,” advises Rowe and Maw partner Andrew White. Schemes will also be required to have one third of trustees nominated by members (MNTs), a move to a more democratic way of ensuring members’ views are best represented. However, the government has yet to announce the date by which schemes should have their full complement of MNTs. Unilver vs Merrill Lynch Investment Management Despite the rumours of a £70 million settlement, the true figure MLIM paid Unilever to compensate for its alleged negligence of the pension fund will never be known. Equally, those wishing to achieve an equivalent settlement by suing their own fund managers should remember that, as there was no judgement, no legal precedent has been set. Nevertheless,
other large companies (such as Sainsbury’s) have indicated a willingness
to follow in Unilever’s footsteps, although not every scheme will
have had the clauses written into the contract which enabled Unilever
to bring its action. “Trustees had already begun to act more cautiously
even before the case, but there is now pressure on them to be more
proactive and thorough,” says Maria Riccio, a partner with Blake
Lapthorn. Trustees may also be unwilling to allow fund managers
to take as many risks as before, and ensure risk control procedures
are in place, Riccio says.
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