Tuesday, 20 December 2011

The Trustee and the difficult struggle for “Fairness”

From “Pensions Age” December 2011

It’s not just that the world of Pensions is complex or that, in some cases, the Pension Scheme is a huge burden on the funding Sponsor that being a Trustee is so challenging. Every Trustee also knows that it is an insufficient discharge of their duties just to ask the lawyers what to do when a decision on something important is needed. The challenge is at its most difficult when the law is ambivalent and we are asked to exercise judgment – simply put to decide what is “fair” in any one situation. It would be nice to be able to echo Abraham Lincoln and say that our members ask for one thing “fairness and fairness only” and that “…so far as it is in my power [this is what] they shall have”. The problem, of course, is what is seemingly fair to one person may not be to another - one group of Pension Fund beneficiaries may be advantaged by a decision but another group may be disadvantaged.

As a Trustee I must act in the best interests of the members and of the beneficiaries overall – and that latter category includes the Sponsor. It is arguable, and has indeed often been argued, that if a Company’s future prospects are seriously hampered by a burdensome Pension Fund then the Trustee should be sympathetic to change – even if that change is in some way disadvantageous to members. This in essence is the Government’s public sector proposition – that unfunded Public Sector schemes are too great a charge on taxation and that the package of benefits currently enjoyed by scheme members must be reduced. Whether you believe that to be “fair” or not depends partly on how you balance employee and pensioner rights on the one hand and the rights of the population at large on the other. No easy task!

Fairness is also linked to “norms”. If the majority enjoy a benefit but a minority, through no fault of their own, do not that is on the face of it unfair. Similarly if a privileged minority receive Pension protection when the rest of the members do not the charge of unfairness and discrimination can also be levelled. This brings us into the whole fractious debate about executive compensation and in particular about the “one per-cent” and the “ninety-nine per-cent”. The huge and growing inequalities that exist between the compensation of a small number of very senior executives in a company and the rest of that company’s employees carry on into retirement. The one per-cent will nearly always be protected from negative changes that might be agreed to the Pensions of the ninety-nine per-cent not just by the sheer size of their pension but by a willingness of their successor directors to ring-fence their predecessors’ substantial retirement income. It is, after all, in the interest of the existing Company Board to do this – they’ll be retired one day soon as well!

So when a Trustee is informed of a proposal for a change that he knows is solely designed to protect the interests of the already very well provided for 1% what should he do? Especially if, as is likely to be the case, the implementation of this change is external to the Fund and is neutral on it. There is no obligation on a Trustee to ensure that all members of a DB scheme are treated equally – it there was the increasingly common practice of closure of the Fund to further accrual would not be permissible. Similarly, and for the reasons already alluded to, there is no imperative of “fairness” – other than, perhaps, the highly subjective one of “Natural Justice”. We may, as individuals, regret that we have a society in which a small number of “High Net Worth” individuals just get richer but, as the music hall song has it, "It's the same the whole world over, It's the poor what gets the blame, It's the rich what gets the pleasure, Isn't it a blooming shame?". Having said that whilst it is rarely, if ever, the case that you make the poor richer by making the rich poorer the ratcheting up or protection of benefits for the 1% does, if it happens, somewhat alter the context within which the benefits of the 99% are being discussed. Class war rhetoric is probably best avoided – but the odd subtle hint that some members are more equal than others might help sometimes!

Paddy Briggs

Paddy Briggs is a Member Nominated Trustee of the Shell Contributory Pension Fund. He writes in a personal capacity.