The opdu Report - Issue 21, November 2006

Bulletin Board
Ten Years On
Alan Herbert, Chairman of opdu’s Advisory Council

Ten years ago, in the Autumn of 1996, a Steering Committee drawn from a number of pension professionals was hard at work with the experts of Thomas Miller on an entirely new concept for providing support and protection to trustees and others employed by sponsoring employers who were responsible for the running of occupational pension schemes. The Committee had been set up with the objective of establishing a defence union to protect their interests and give them support in carrying out their statutory duties under the Pensions Act 1995.

I had been invited to chair the Committee the task of which was to have the defence union in place by 6 April 1997 when the provisions of the Pensions Act 1995 covering pension scheme trustees would come into force. It was felt that sponsoring employers would want to be able to reassure those coming forward for the first time, to be Member Nominated Trustees or Member Nominated Directors of trustee companies, that they would be provided with insurance cover and legal protection if anything went wrong during their term of office for which they might be liable.
The Committee had started with a blank sheet of paper to put down the sort of cover that trustees would need in the new statutory regime which would face them. In addition, allowance also needed to be made for the more litigious society in which pension scheme trustees found themselves operating. It was therefore important to draft policy wording which would provide wide cover in this new environment. It was also necessary to make sure that the cover overrode the indemnity and exoneration clauses which were in many trust deeds so that when there was a bona fide claim, the policy would meet it up to the indemnity limit chosen by the scheme.

Once the wish list of cover had been drawn up by the prospective users (ie the prospective insured) the experts from Thomas Miller were asked to go out into the marketplace to discuss the scope of the cover and find underwriters who would be interested in providing the cover. They would be gaining access to a large book of business where it was expected the standards of managing the schemes would be above average and where support processes would be in place to encourage the raising of standards of management and trusteeship. In addition, Thomas Miller,
as the managers, would have claims handling authority which would remove from underwriters this time consuming activity. It would also enable them to mitigate losses and ensure prompt resolution of any problems in order to avoid damaging the reputation of the scheme and the sponsoring employer.

Having checked the market Thomas Miller recommended using CIGNA (Europe) which  was subsequently acquired by ACE which has speciaist expertise in this field. Discussions then took place to settle the policy wording which would be available to all members of the defence union. It was also necessary to settle a name. This emerged fairly easily as it was a defence union for those running occupational pension schemes so The Occupational Pensions Defence Union was a natural choice or opdu for short.

opdu was incorporated as a limited company within the Thomas Miller Group but in addition to its board of directors an Advisory Council was established, made up of representatives of the opdu membership plus some co-opted members. The aim was to run it on the lines of a mutual. It also had an Advisory Panel consisting of actuaries and pension lawyers drawn from leading firms who would be there to provide advice to opdu and its members if needed. In normal circumstances opdu seeks to work with the schemes’ existing advisers unless there is some conflict.

The operation of opdu is governed by a set of rules which the Steering Committee was involved in drawing up. Each trustee or trustee director and any other person covered by opdu membership is provided with a Members Handbook and User card. This personal cover will continue after an individual has left office if the scheme maintains its opdu membership. If the scheme ceases its opdu membership there is run-off cover for up to twelve years from when the individual was last associated with the scheme. I must admit that I strongly value my opdu membership cards for the schemes with which I am involved which are opdu members. Besides trustees and trustee directors, cover is provided for internal staff such as the secretary to the trustees, pension manager, investment manager (if the scheme has its own in-house investment team), dispute manager, scheme accountant etc, involved in the running of the scheme. They have a support service to which they can turn for advice with a final backstop of insurance cover if the worst happens. However well run a scheme is, mistakes can happen or outside circumstances can impact on the scheme which involves the trustees and officers.

opdu was launched on 3 April 1997 and will be celebrating the 10th anniversary of its formation at a reception following the Annual Meeting on Thursday 29th March 2007. Shortly before the launch, a briefing meeting was held with officials from the then DSS, OPRA, the Pensions Ombudsman and OPAS as it was known so that they were fully aware of the objects and intentions of setting up a defence union for those involved with running occupational pension schemes.
I think it appealed to them that opdu could also be regarded as a risk manager, and was keen to encourage best practice in order to avoid unnecessary claims.
In this way it is possible, over time, to manage the level of subscriptions required from members.

Since the formation of opdu it has established a separate subsidiary Trustee Risk Management Ltd (trm) to concen-trate on this aspect and it has been working in conjunction with The Pensions Regulator in running seminars on risk management for trustees. In addition, it has provided sponsorship to encourage trustee excellence, supported the setting up of the Raising Standards Pensions Administration initiative and through the opdu Report provided information and topical articles to assist trustees to keep abreast of developments and new ideas in pensions management.

Over the period since the formation of opdu close contact has been maintained with the regulatory authorities, The Pensions Ombudsman, The Pensions Advisory Service and the Department for Work and Pensions so that opdu is fully aware of the issues which may pose risks for schemes and trustees. opdu was very pleased to be invited to nominate three lay trustees from it membership to the Trustees’ Panel set up by the Minister of Pensions which acts as a two way sounding board on issues affecting trustees.

The Pensions Act 2004 focuses on the protection of pensions and the responsibilities which are placed on trustees to see that members receive their pensions when they are due. The Codes of Practice are there to give guidance to trustees of what is expected from them in carrying out their duties. opdu very much supports the efforts being made to raise standards of trusteeship.

However, despite this, there will be occasions when things do not go as planned and opdu will be ready to give support to its members in resolving such situations. As anticipated, after the initial period of the first three to four years, claims have started to arise. These have included members suffering losses as a result of incorrect wording in an explanatory booklet, the incorrect use of actuarial factors and incorrect calculations by administrators. In addition, the litigation costs extension of the opdu policy has been used to assist trustees clarify the actions they should take in protecting members benefits in some complicated circumstances.

opdu obtained its first member shortly after it was launched on 3 April 1997 and it now has 215 members covering some 350 schemes with assets backing them of some £115bn. opdu is much looking forward to celebrating its 10th Anniversary with its members and the many friends and supporters it has made over the first ten years of its existence.

Also see: "The Alan Herbert Interview" - Report 1 December 1997