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Final-salary trustees warned of legal threat over wind-up

Trustees of final-salary schemes could face legal challenges from

non-retired members if they lose out when schemes wind up, warns

Gissings chief economist Roger Nightingale.

Scheme trustees could be vulnerable to litigation if regular payments

were made at a rate that funds could not sustain because of

underfunding, Nightingale told delegates at the Pensions Management

Institute conference in London last week.

But trustees say that alth-ough they are obliged to administer

schemes in a way that is fair to all members, they are also bound by

rules that prioritise retired members ahead of non-retired members.

IFA Marshall Williams & Co director Ian Williams says trustees

could be in difficulty if they had not notified employers of the

potential need to change scheme rules that left a scheme underfunded

for existing members.

The Government is hoping its Pensions Green Paper will address these

problems as it proposes changing the prior-ity of members on wind-up.

Currently, members who have already retired get 100 per cent of their

benefit rights ahead of rights paid to pre-retirement members.

Nightingale says: “Trustees may be vulnerable before the courts if

they have been paying defined-benefit pensions to retired scheme

members when for most of the time there has not been enough in the

pot.”

Pinsent Curtis Biddle head of pensions Chris Mullen says: “Trustees

are potentially vulnerable where discretionary payments such as

pension increases and early retirement packages have continued for

too long into a period when the scheme was unfunded.”

Marshall Williams & Co director Ian Williams says: “Trustees need

to protect themselves by telling employers that some members will be

left with a shortfall unless the employer changes the scheme rules.”

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