UK - Lax service contracts enable third party administrators to avoid millions of pounds of claims by pension schemes, a leading lawyer claims.
Linklaters pensions litigation partner Mark Blyth says the dire state of many pension schemes’ administration services has been brought to light by the trend towards outsourcing.
But Blyth said the lack of detail in many contracts was allowing negligent providers to escape.
Blyth said it was vital that schemes have a decently-drafted agreement with the outsourcer.
He added: It's in the interest of both the administrator and the trustee to have the relationship properly documented to define duties, address areas of potential dispute and have dispute resolution mechanisms - all to avoid costly court battles.”
Blyth said that for litigation to succeed, trustees need to prove that:
- The administrator owed a duty of care.- It breached that duty.- A financial loss was incurred.
Dunnett, Shaw & Partners senior consultant Ian McQuade agreed that many contracts were not watertight.
He said: “It’s easy to identify loss if it is at member level. But it becomes more difficult to quantify if the extra work is due to having to clean something up.”
The Pensions Management Institute is reacting to widespread administrator-client disputes by writing a model administration agreement which it hopes will provide best practice guidelines for trustees outsourcing their administration.
PMI secretary-general Sue Howlett said: “The model-contract is a check list for trustees for when they are passing to a third party or even an in-house administrator.”
The document will be available from the PMI website from July 1.
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