View more on these topics

Sticking to the rules

Pensioners have a good legal case against actuaries but do not have the resources.

The one striking feature of the coverage of the recent success in the High Court of pensioners hit by the final-salary debacle is the way that actuaries who advised on the collapsed schemes have managed to steer clear of most of the flak.

I would suspect that more than a few of the trustees of these schemes will be wondering why the actuarial firms which were paid vast sums of money to advise them did not make a better job of it.

Actuaries are paid for knowing more than the rest of us about their given profession. At first glance, you could be forgiven for thinking that if an actuary had certified a scheme as sound in 2000, an employee leaving that company at that time would be entitled to think that their pension was safe. Indeed, Secretary of State for Pensions John Hutton pointed out that members had continually been advised by professionals when he was trying to pour cold water on the Parliamentary Ombudsman’s findings of maladministration last year.

In the same way that a surveyor would be sued if a house they had certified as sound fell down a couple of years later, similarly, a pension scheme member might think he could call on the actuary that told him his pension was safe to refund him.

But the labyrinthine British pension system is not set up with such direct chains of liability. The actuary advises the trustee and it is the trustee that advises the scheme member. Yet that is not to say that the trustees cannot sue the actuaries on behalf of members if they have been negligent.

The Government fixed the regulations setting out what actuaries had to tell scheme members. Unfortunately for those not yet retired, this only extended to telling them that the scheme as a whole was sufficiently well funded to pay most of its liabilities. They were not required to tell people that the way the cash would be carved up if things went pear-shaped could mean that they would get next to nothing.

But actuaries knew that the Government’s accounting rules and reporting requirements were thin, to say the least. They told the Government that the minimum funding requirement was not up to scratch. The Government replied that it was only going to require them to tell trustees and scheme members the bare minimum because they do not want to cause a panic by telling people exactly how precarious their position is.

This appreciation of the low MFR standard left actuaries in a tricky position, namely, knowing that a crisis was coming, yet not telling their clients, the trustees, about that crisis because the statute said they did not have to. Who would want to take professional advice from somebody who felt the protection of their own interests meant they could not give you the full picture as they understood it?

In light of the sloppy regulatory framework, the smart, efficient actuarial firm will have been diligent in making sure that it made no positive representations about the security of an individual’s pension. It will have stuck to the letter of the regulations and given the vaguest advice it could – legally watertight but morally questionable.

But I am sure there are actuarial firms which have gone further than the minimum required, whether through preparing communication documents for trustees to send out to members or through the loose wording of actuarial documents seen by trustees and members, to be seen to have given firm assurances.

I have seen documents from big-name actuarial firms that in my view say enough about the strength of the scheme to lead members to feel entitled to be able to rely on them. With infinitely deep pockets, many schemes would succeed in legal action against their actuaries. Sadly, they have neither the resources nor the time to take these issues through the courts.

John Greenwood is editor of Corporate Adviser.


Fears over negative equity pledge

The equity-release market has warned that products could lose their no negative equity guarantee under new rules.In Retirement Services director Ged Hosty says rising rates on the back of changing capital-adequacy requirements could force providers to scrap the no negative equity guarantee, which would make products less attractive.Many industry commentators fear that under the Basel […]

St James’s Place profits from double margins

St James’s Place has received an outperform rating from leading City analysts after profits of 176m last year.The profit figures were up by 54 per cent on the previous year’s figure of 114.5m as new business leapt by 58 per cent from 221m to 349.1m.Analyst Cazenove gives the firm an outperform rating, saying the outlook […]

Walking a fine line

I have just read Nic Cicutti’s article about payment protection insurance (Money Marketing, February 22), I think the expression is with interest, but it is the last paragraph that has prompted me to write. We all know that treating customers fairly is the last thing that banks and building societies have on their mind and, […]

Poor old John…

Poor old John Wriglesworth. The PR guru and economist got a nasty surprise when he turned up for work on a cold winter’s morning last month to find that the headquarters of his PR empire had been burgled. Sources close to the agency suggested that nothing substantial was stolen apart from Wriglesworth’s shoes. The thieves […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm