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Trustees could be liable for lost compensation

Pension trustees could be held personally liable for hundreds of millions of pounds in lost compensation payouts if they fail to sign up to shareholder class actions, legal experts warn.

Irwin Mitchell partner Alan Owens says around $5bn in compensation was paid out from shareholder actions against firms found guilty of fraud last year in the US but UK investors regularly miss out on their share because of a lack of trustee knowledge.

The US authorities regularly publish notices of class actions and trustees and investors only have a limited window in which to sign up to any agreed compensation package.

Owens says US litigants will typically try to exclude foreign investors from any compen-sation package if they do not sign up in time.

If UK pension trustees do not sign up to actions, they could find themselves challenged after A-Day when personal liability is introduced into trustee rules.

Scottish Life group head of communications Alasdair Buchanan says the increasing legal risks to trustees mean they must have substantial PI cover and he expects this to hasten the trend away from trust-based pension schemes to contract-based schemes, particularly with all exemptions from member-nomin-ated trustee requirements set to expire by October 7, 2007 at the latest.

Buchanan says: “Very high standards are being talked about and this is another reason that we will see a move from trust-based schemes to contract-based schemes.”

Owens points out that the deadlines for filing compensation claims against two high-profile corporate failures, Broadcom and TXU, close on October 5 and November 7 respectively.

He says: “Many trustees have no knowledge of what actions are paying funds and if they do not start getting their houses in order, trustees could expose themselves to actions from investors.”

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