Publications

Bulletin 2 Autumn 1992

Disclosure Regulations

The DTI has issued draft regulations to amend the Companies Act rules, which presently call for disclosure of shareholdings at or above 3%, in the light of the EC Directive which requires disclosure at a 10% level.

The principal beneficiaries will be investment managers who will be able to hold up to 10% of a company's equity on behalf of clients without being required to make a declaration.

As far as pension fund trustees are concerned, the DTI considers: "that it would be premature to propose provisions relating to pension fund trustees in these regulations before the [Goode] review committee has produced its report".

The disclosure limit therefore remains at 3% for pension funds. Note that is the trustees of a fund who have the responsibility to declare a holding. If your fund is split between several managers it is your responsibility to ensure that there is an appropriate system to enable you to aggregate shareholdings for disclosure purposes.

The Goode Enquiry

The Report of the House of Commons Social Security Committee in March recommended that the incoming government should establish a high level enquiry to review pensions law.

The government responded in early June by establishing the Goode Committee to be chaired by Professor Roy Goode, QC, professor of English Law at the University of Oxford. The other members of the committee of enquiry are listed below:

Tony Atkinson, Professor of Economics, London School of Economics

David Berridge, Chief Executive, Scottish Equitable Life Assurance

Harvie Brown, Actuary and principal, William M Mercer Fraser Ltd

Bryan Hines, formerly General Manager, Insurance and Investments, ICl plc

Stuart James, Partner, Rowe and Maw

Terence Libby, Chairman and Chief Executive, Morrisflex Ltd

Alastair Ross-Goobey, Chief Investment Strategist, James Capel

Patricia Triggs, Partner, KPMG Peat Marwick McLintock

Sue Ward, Freelance journalist and researcher on pensions issues

The Committee, which was given twelve months to report, has the following terms of reference: "To review the framework of law and regulation within which occupational pension schemes operate, taking into account the rights and interests of scheme members pensioners and employers; to consider in particular the status and ownership of occupational pension funds and the accountability and roles of trustees fund managers auditors and pension scheme advisers; and to make recommendations.

At a conference in June organised by Capital House Investment Management, Sir Edward Heath was asked his opinion of the enquiry "It is all very straightforward" he said, commenting that in his view an enquiry was unnecessary and that what was required was the appointment of c independent trustee to c schemes and independent custody of assets.

Whilst we obviously endorse his views on independent trustees, unfortunately the situation is not that straightforward and we wish the Committee well in its difficult task. BESTrustees will be submitting evidence to the enquiry in due course.

The Institute of Directors' Guide

In June the Institute of Directors produced a guide to pensions for its members. In the introduction, Peter Morgan, Director General of the IOD, stated that, "the challenge for employers is to reconcile, by means that will stand the test of time, the aims of the government, the objectives of their companies and the expectations and aspirations of their former, present and future employees." He noted that, "the complexities of administering pension schemes can be daunting; the financial implications far-reaching.

Dealing with the constitution of a pension scheme, Blenyth Jenkins, the IOD's director of corporate affairs wrote,

"... the IOD strongly supports the principle that the trustee body should at all times include at least one independent trustee (or more, depending on the number of trustees, in any event sufficient to create a critical mass of independent trustees), with no direct interest whatsoever in benefits arising under the scheme An independent trustee performs exactly the same function in providing the elements of independence and objectivity which might otherwise be lacking in monitoring the propriety of the trustees' actions, as do non-executive directors in relation to the proceedings of a company's board."

"The trust deed should contain provision to the effect that an independent trustee may only be removed on appointment of another independent trustee, and that a quorum of meetings of the trustees is not constituted without the presence of at least one independent trustee.”

Brian MacMahon, Chairman of the National Association of Pension Funds, in examining the role of trustees, commented that: "It may be self evident, but the first requirement of trustees is that they be trustworthy and trusted". The presence of independent trustees is important to reassure both the sponsoring company and the members that all is in order and to bring, in Brian MacMahon's words the outward appearance of impartiality which reflects the inward impartiality which all trustees must have”.

Cadbury Committee

The draft report of the Committee on the Financial Aspects of Corporate Governance (the "Cadbury Committee") was issued for comment at the end of May.

Whilst the report was essentially concerned with the corporate governance of companies, it did comment on the stewardship of pension funds in the following terms:

"The basic corporate governance issue is that the governance of a company s pension fund should be separate and distinct from the governance of the company itself. It should be the duty of the boards of companies to ensure that there is that separation and that the assets of pension funds are safeguarded"

This recommendation is consistent with the report of the Social Security Committee earlier this year and emphasises the need for professional, independent trustees to work alongside management and employee-appointed representatives.

The final report of the Cadbury Committee will be produced shortly.

"Pension Trust Principles"

The Occupational Pensions Board has published a short guide to the role and responsibilities of pension fund trustees. Under recently introduced regulations occupational pension schemes must disclose to members whether a copy of the booklet is available to trustees - you should state so in your annual report.