Michael Klimes asks if guidance which recommends scheme deeds and rules be consolidated into one document at least every five years, should be a regulatory requirement.
When updating trust deed and rules, it is normal practice to make changes through separate amending deeds. But if changes to a scheme's rules are not kept up to date and located in one easy to reach place, problems can arise.
Communications to members could contain inaccurate information, administrators might pay out the wrong benefits, and schemes could face challenges when seeking to do a buy-in or buyout.
Therefore, The Pension Regulator's (TPR) guidance says it is good practice for trustees to record any changes to a scheme's rules in one document at least every five years.
However, there are concerns that some schemes are not following this guidance which has been in place since 2007.
Irwin Mitchell partner Penny Cogher believes more stringent measures should be put in place to ensure trustees record changes to scheme rules in a single document at least every five years.
"There is a situation in some schemes where trustees do not want to incur the extra cost of going through documents and putting them into one place. So it gets postponed partly due to cost reasons and because trustees are focused on other things," she says.
Cogher has seen it happen in small to medium sized defined benefit (DB) plans, and old defined contributions (DC) sections bolted onto DB schemes. It can also occur at some large umbrella arrangements, which have multiple schemes with non-associated employers. "Here it is at the discretion of the employer to update their own schemes as these have their distinctive rules," she continues.
Cogher knows of more than one scheme where the main definitive trust deed and rules date back to 1984. While they have made changes to the scheme rules through separate amending deeds, they have not been consolidated into one document.
Cogher thinks a slight tweak could be made to Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013, which say that members have a right to see their scheme's trust deeds and rules.
"You could just extend that to say that members have a right to see a consolidated version of a scheme's trust deed and rules. It could work through each scheme's annual return completed for TPR. This could show when the scheme's trust deed and rules were last consolidated and to begin with, and if this was too long ago TPR could request that the trustees and employer update them," explains Cogher.
However, with any introduction of more stringent compliance procedures, there are always arguments they can cause more problems than they solve.
Law Debenture director Andrew Parker does not think there is an overriding need to formally consolidate scheme documents if all the amending deeds are kept with the deed they are amending.
"It may be good practice to put the deeds in one updated master document but the very schemes identified may not wish to incur the additional cost if the current scheme provisions can clearly be followed from the documents."
Anyhow, some scheme lawyers keep an informal deed which records all individual amending deeds made to the scheme, he adds.
Gowling WLG partner Jason Coates thinks TPR could highlight examples where record-keeping has been done successfully. "The encouragement of some good practice would be a more proportionate way for each scheme to keep records and comply with the law," he says.
He also thinks trustees should adopt two measures which would help keep on top of records. "Firstly trustees should create an updated electronic working copy of the deeds and rules [a composite] that consolidates all the amendments [changes to scheme] in one document," he says.
"Secondly there should be annual review of the trustee deed and it can be updated if needed. The advantage here is that trustees will be able to regularly review and engage with the sponsor to check the deeds and rules comply with the law. If you take these steps it would assist with trustee knowledge and understanding and reduce mistakes."
Since there is already a lot of pensions legislation, perhaps it is wise to do more to encourage trustees to keep better records via helpful guidance rather than creating extra onerous rules.
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