DO trustees of pension schemes always understand their responsibilities? Not always, it seems, as a recent case to do with annuity entitlements showed in Britain.
According to Paul Kenny of Irish Pensions Trust (IPT) this case, "which was presented in the latest annual report of OPAS, the British agency that helps members to settle pension disputes, is probably just as relevant here as it is in Britain." IPT has circulated the findings of the case to all member companies with which it acts as trustee.
According to the OPAS report, the case involves an employee, Mr M who retired last May and was told by his employer that his annual pension would be £6,793 and would be provided by the same insurance company that had managed the company pension fund. But Mr M had seen an article about annuity rates in a Sunday newspaper which had listed the employer's insurer as among the worst providers of annuities. He wrote to the trustees asking for an `open market' option in order that a better annuity rate be realised. The trustees refused.
OPAS found out that under the terms of Mr M's scheme, an open option was allowed and asked the trustees why they didn't avail of it. It was told that "if they did so for Mr M they would have to do it for every retiring member and that would cause administration difficulties. They also pointed out that the rules gave the option to the trustees and not the member."
OPAS eventually convinced the trustees to seek the best annuity rate on the open market and Mr M received a pension of £7,790 a year, nearly £1,000 more than the initial arrangement. OPAS commented: "This is an example of the trustees of a small scheme not understanding their responsibilities. Trustees must always act in the best interest; of all the members so far as the rules allow. In this case the pension could be increased by almost 15 per cent at no extra cost to the trustees, but initially they regarded administrative convenience as taking precedence over their legal responsibilities
Pension fund administrators like IPT "always employ open market annuity options where they are available," says Mr Kenny. "But having said that, trustees are obliged to take other matters into consideration, such as the service you can get from an annuity provider. It is completely pointless, for example, to go for the last penny on an annuity rate if the instalments are not paid on time."
He believes that open market options are exercised "by all the main pension practitioners in this country," but says that schemes where an independent financial adviser is not involved are more likely to simply rely on the advice from the insurance company which has been managing the pension fund. "It is not realistic to expect, in these circumstances, that they would be told to shop around to secure an annuity with another insurance company.
In Britain, complaints like this one are brought to watchdog agencies like OPAS and if settlement is not reached, ultimately to the Pensions Ombudsman. In the absence of a Pensions Ombudsman in Ireland, anyone who is concerned that an open option rule is not being exercised for the purchase of their annuity should contact the Pensions Board, Holbrook House, Holles Street, Dublin 2, Tel. (01) 6762622.
