The Significant Intertwining of the Law of Trusts - Essay Example

Critically examine the contribution made by the trust to the law related to Pensions. Trustees have a vital role to play in the operation of UK private pension schemes as the most of these are organised as trusts whereby the operation of these private pension schemes will become amenable to the contents of the trust deed and general trust legislation like (Trusts of Land and Appointment of Trustees Act 1996; Trustee Delegation Act 1999; Trustee Act 2000) along with pension specific legislation like the Pension Scheme Act 1993 and the Pensions Act 1995 ( Cooper, D.R. 2000) . Even though specialist law reports pertaining to pensions began in 1989, most of the case law relating to pensions was found in a rather haphazard way in the case law relating to trusts. Cooper, D.R. (2000).Most of these Trusts cases now seem to have become a part of modern Pensions statutory law, yet they were the ones that lay the foundational principles for it.(For example see Tibbals v Port of London Authority [1937] 2 All ER 413; Doyle v Manchester Evening News which was decided in 1985 but only reported four years later in the first volume of the Pension Law Reports in 1989 [1989] PLR 47; and Re Alfred Herbert Ltd Pension and Life Assurance Scheme [1960] 1 All ER 618.) The reason that a review of the role and contribution of the law of trusts to the law relating to pensions is important is because in 2004 alone there were 927 billion worth of private pension funds under management in the UK, holding 16 per cent of the domestic ordinary share market, which is the largest in Europe and third largest in the world (Slattery and Nellis, 2004).Today pension funds of several British Corporations run into larger amounts athat their own market capitalisation (Slattery and Nellis, 2004). The law relating to pension schemes is derived from the old trusts law(sometimes even dating back to the eighteenth century). Cooper, D.R. (2000) . Even though the courts have recognised the different nature of pensions as compared to traditional trusts it seems that there are still gaps in this area.(Hales, C., Gough, O 2003) Private sector pension schemes are set up as trusts and a trust fund will be created to which the employer has to contribute(sometimes the employees may be required to contribute as well). The concept of trust developed with the purpose of the facilitation of the passage of inheritance and property to a trusted party (trustee or trustees) for the benefit of a third party (beneficiary or beneficiaries).Therefore when trusts are set up in the form of pensions for employee benefits the current and former employees along with their family members become the beneficiaries of this scheme. Hales, C., Gough, O. (2003) These schemes allow the trustees to own the legal title to the assets of the scheme and invest this .They must invest this capital for the benefits of the members of the scheme and look after the interests of pensioners and the current employees. Hales, C., Gough, O. (2003) Best interests have been defined as those confined to monetary goodwill i.e. being able to obtain maximum amount of pension through the prudent investment of the trustees. In this regard the Pensions Act 1995 puts an obligation upon the trustees to make prudent and risk free investment decisions. The Act prevents them from escaping liability through exclusion clauses in the deeds and must take care in ensuring that a proper person is appointed for the purposes of managing such investment.The trustees will be able to draw up a statement of investment principles.They will be able to decide upon whether a member leaves the scheme and whether to pay a certain person earlier due to death or ill health. The most significant intertwining of the law of trusts and law of pensions occurs when the Courts refuse to intervene into the trust matters following the extensive powers conferred upon the trustees to make decisions. (Duncan, C., Loretto, W., White, P.2001).However the Court will be prepared to intervene to ensure whether these powers have been complied with and will set aside decisions which are made outside the ambit of these powers and the purpose for which it was given i.e. the benefit of employees and not the employers.(Also decisions which have been taken in bad faith). (Duncan, C., Loretto, W., White, P.2001), The concept of trusts allows a balance of power to be maintained between the employers and trustees for the benefit of the employees. These powers include examples like the power to wind up or amend a scheme or to make any discretionary payments. The trustees retain the power under the law to prevent racial or sexual discrimination within the scheme. (Duncan, C., Loretto, W., White, P.2001), The role of trusts and trustees in the area of Pensions has gone through a lot of criticism recently as many academics have argued that most of the trustees of occupational pension funds are inexperienced in fund oversight (Scott, 2002). The question is not whether they are capable enough as individuals,but whether they have the appropriate skills to administer public pensions and as they may be unfamiliar with the intricacies of running a pension fund. Suggestions are underway for professional trustees (just like the concept of Non-executive Directors in Company law)(Scott, 2002). Myners (2001) has concluded in a survey conducted in 2001 ( Paul Myners was the CEO of Gartmore, the London-based USA owned fund) that trustees of Pension funds are underpaid and lack professional qualifications. (The Economist 2001.) They should be better remunerated and made better aware of the ever increasing legalities and complexities involved. (The Economist 2001) The concept of the prudent man does not contribute to the effective administration of the trusts as increased vigilance and level-headedness in the management of funds is required. (The Economist (2001) There have also been calls for the trustees to have a higher standard of care and skill yet proponents of the current system recommend that such requirements will only increase the element of red tape and bureaucracy which has already tainted the effective operation of Pensions Law. (The Economist 2001) In conclusion despite its sizeable contribution to the law of Pensions,the modern trusts law will have to mould itself to the Prudent versus Professional trustee debate particularly in the light of government policies and technological developments,which require all trustees to learn new skills. The main concern today is to therefore try and develop the modern Pension Trusts to be better equipped to deal with emerging market and regulation driven complexities. References 1. Cooper, D.R. (2000), "A tale of two pension systems", Employee Relations, Vol. 22 No.3, pp.286-92. 2. Duncan, C., Loretto, W., White, P. (2001), "'Thatcher's children' pensions and retirement - some survey evidence", Personnel Review, Vol. 30 No.4, pp.386-403. 3. (The) Economist (2001), "British company pensions: everyone's headache", The Economist, Vol. 36 No.8252, pp.79. 4. Fleming, R. (2000), "Employee benefit plan review", Employee Benefit Plan Review, Vol. 54 No.12, pp.48-51. 5. Hales, C., Gough, O. (2003), "Employee evaluations of company occupational pensions: HR implications", Personnel Review, Vol. 32 No.3, pp.319-40. 6. National Association of Pension Funds (NAPF) (2001), NAPF Yearbook, available at: http://www.pensions-pmi.org.uk/ (accessed 27 June 2003), . 7. Occupational Pensions Regulatory Authority (OPRA) (2002), "Tackling the risks to pension scheme members", The Stationary Office, National Audit Office, London, Report by Comptroller and Auditor-General, No. HC1262, . 8. Occupational Pensions Regulatory Authority (OPRA) (2003), The Stationery Office Limited, London, Protecting Pensions: Annual Report and Accounts 2002-2003, . 9. (The) Pension Fund Partnership (PFP) and MRM Projects Ltd (1999), The Pension Fund Partnership and MRM Projects Ltd, UK, 1999 Company Pension Fund Survey, . 10. Pension Law Review Committee (PLRC) (1993), HMSO, London, The Report on the Pension Law Preview Committee - Goode Report, 11. Scott, M. (2002), "Cash: retirement is no joke: parting company with the sure bet: Maria Scott on what you can do if your final salary scheme bites the dust", The Observer, pp.4. 12. Slattery, D., Nellis, J. (2004), "What is the future of the UK life and pension industry", Critical Eye, pp.34-7. Read More