by Roderick Ramage, solicitor, www.law-office.co.uk
first published in New Law Journal (https://www.newlawjournal.co.uk) on 25 October and 1 November 1996 and updated 22 August 2018
This article and precedent are not advice to any person and may not be taken as a definitive statement of the law in general or in any particular case. The author does not accept any responsibility for anything that any person does or does not do as a result of reading it.
Amongst the pension law reforms to be brought into force on 6 April 1997 is the obligation for pension scheme trustees to appoint professional advisors under section 47 of the Pensions Act 1995 and the Occupational Pensions Scheme (Scheme Administration) Regulations of 1996 (SI 1996/1715). Sub-section (4) defines as "professional advisors" in relation to an occupational pension scheme, the auditor, actuary, legal advisor and any fund manager appointed by or on behalf of the trustees. By sub-section (1) the appointment by the trustees of an auditor and actuary is compulsory, as is by sub-section (2) the appointment of a fund manager, if the scheme's assets include investments within the meaning of section 22 of the Financial Services and Markets Act 2000. The definition of "professional advisors" also includes other persons appointed by the trustees or managers to exercise "prescribed functions" in relation to the scheme. Regulation 5 of the regulations requires the appointment, resignation and removal from office of a professional advisor to be in writing.
The precedent which follows is a short form of appointment, which is sufficient to comply with the statutory minimum requirements with an additional paragraph to incorporate by reference the advisor's normal terms of engagement.
One particular feature of the statutory requirement is that the advisor must confirm that he will notify the trustees if he becomes aware of any conflict of interest.
This obligation for a formal appointment of professional advisors applies to every occupational pension scheme apart from those expressly exempted in SI 1996/1715 reg 3 are according to the types of adviser in section 47.
reg 3(1) Auditors (s47(1)(a)):
(a) schemes under an enactment of guaranteed by a Minister of the Crown;
(c) occupational pension schemes which after 6 April 2006 are not registered;
(e) unfunded occupational pension schemes;
(f) occupational pension schemes with less (sic) than 2 members;
(h) [schemes defined as small in SI s1, still commonly called SSASs];
(i), (m) and (o) [specified unusual and specific schemes].
reg 3(2) Actuaries (s47(1)(b)):
(a) money purchase schemes; and
(b) schemes mentioned in
(i) 3(1) (a), (c), (e). (f), (h), (m) and (o), and
(ii) 3(1)(c) or (i) with fewer than 100 members.
reg 3(3) Fund managers(s47(2)):
(a) relevant schemes in SI 2001/1177 para (4) of reg 4 (Managing investments: occupational pension schemes);
(b) wholly insured schemes; and
(c) schemes mentioned in 3(1)(a), (c), (e). (f), and (i).
reg 3(4) legal advisers, fund managers, and persons exercising prescribed functions (s47(3)):
schemes mentioned in 3(1) (a), (c), (e). (f), and (i)
One can speculate that the legislator intends this law to benefit pension scheme members, but, as it adds nothing essential to the existing law, the only real beneficiaries are actuaries, auditors, solicitors and other advisors, who are given a statutory licence to market their services more vigorously than they would otherwise have done.
[name] Pension Scheme
letter of appointment of professional advisors
from the Trustees
to [professional advisors]
[name] Pension Scheme ("the Scheme")
We notify you that we appoint you to be the [actuary/auditor/pension consultant/ solicitor/or as appropriate] to the trustees of the Scheme. The appointment takes/took effect from [date]. The persons to whom you are to report and from whom you are to take instructions are [name] and [name] [or] any two of the trustees [or as the case may be]. All instructions and reports must be in writing. [This does not prevent any oral discussions, explanations and clarification, but where either party reasonably believes that anything discussed orally materially effects any instructions or report, it must be confirmed in writing.]
[We acknowledge that your terms of engagement [as set out in your letter of [date]] shall apply to this appointment.]
Please acknowledge receipt of this notice of appointment by signing and returning the acknowledgement and confirmation at the foot of the enclosed duplicate of this letter.
for the Trustees
We, to whom the above letter is addressed, acknowledge receipt of the above notice of appointment and confirm that we will notify you immediately we become aware of the existence of any conflict of interest to which we are subject in relation to the Scheme.
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