The opdu Report - Issue 1, December 1997

Bulletin Board
First Edition of The opdu Report featuring The Chairman of the Advisory Council

The Alan Herbert Interview

Alan Herbert fcis, fpmi, Chairman of the Advisory Council of OPDU,
who retired as Head of Pensions of BP earlier this year, talks about the concepts
which lay behind the formation of OPDU

“I was sounded out on the idea of forming a defence union to protect the interests of those responsible for running occupational pension schemes on behalf of their employers in the Summer of 1995. The idea appealed to me as I felt there was a need in the new legislative environment to have a service to which in-house pension managers, administrators and trustees could turn for advice with a final backstop of insurance cover if the worst happened.

Whilst a number of schemes’ Trust Deeds contain indemnity and exoneration clauses for the Trustees themselves or the directors and officers of a Corporate Trustee, the pension manager and his staff who actually administer the scheme on a day-to-day basis, are quite often employed by the Principal Employer or a subsidiary pension service company. They invariably are not covered and rely on the goodwill of the Employer to protect them if things go wrong and a claim is made against them. Companies quite often organise, on a Group basis, Directors and Officers liability insurance for all subsidiary companies, which will apply to a trustee company or a service company but it is far from clear whether this actually covers losses incurred by the trust as a result of the actions of the pension manager/administrator and staff. Equally, what is the position of the pension manager who has moved jobs or retired before a claim is made as a result of his actions whilst in office?

With a growing number of Member
Nominated Trustees likely to play a greater part in the trusteeship of occupational pension schemes, over what is likely to be shorter periods, lasting possibly three years, the availability of protection after the end of their period of trusteeship is something I thought would give comfort to lay trustees and assist members in coming to a decision to stand for election as a Member Nominated Trustee.

I had further discussions on the issues with specialists who managed professional liability cover on a mutual “club” basis for a number of other professions. As a result of these discussions I became even more convinced that a defence union similar to the medical defence union which doctors can use would be of value to those I would leave running occupational pension schemes when I retired.

In the Summer of 1996, with the support of the National Association of Pension Funds, we were ready to share our ideas with representatives from a number of pension schemes who had shown interest in the concepts. A meeting was called and an outline of the proposals for a club covering occupational pension schemes was put to the meeting. As a result of the interest shown, a Steering Committee was formed which I was invited to chair. Thomas Miller & Co. Ltd, whose parent’s origins go back to 1884 and who specialise in managing mutual indemnity clubs, was chosen as the manager.

During the Autumn and Winter of 1996/7 members of the Steering Committee, drawn from a number of pension professionals, worked with the experts of Thomas Miller to draw up the rules of OPDU and negotiate the terms of the insurance policy with the underwriters, to provide a service and cover which was tailor made for those running occupational schemes unlike traditional trustee insurance policies.

I believe we have ended up in being able to offer to occupational pension schemes a unique service which will have the added benefit of an Advisory Council whose members are very experienced themselves in running pension schemes supported by an Advisory Panel of pension lawyers and actuaries who will be able to provide expert advice when needed, and liaise with the schemes’ own professional advisers. Thomas Miller, as the managers, also have the authority to negotiate potential claims on behalf of the underwriter in order to mitigate losses and ensure prompt resolution of any problems in order to avoid damaging the reputation of the scheme and the sponsoring employer.

Shortly before the launch, a briefing meeting was held with officials from the DSS, OPRA, the Ombudsman and OPAS so that they were fully aware of the objects and intentions of the defence union. OPDU, which can also be regarded as a risk manager, is keen to encourage best practice in order to avoid unnecessary claims. In this way it will be possible, over time, to drive down the subscriptions required from members.

Close contact will be maintained with the regulators in order to build up a library of case studies. This will illustrate common problem areas which it is hoped OPDU members will be helped to avoid. However, it has to be accepted that problems will still arise and that is where OPDU will be able to offer a valuable service to its members.

Also see: "Ten Years On" by Alan Herbert - Report 21 November 2006