Article - Chambers Student Guide

Pensions Law

In a nutshell

Pensions law revolves around long-term management of large sums of money. Pensions lawyers advise on the creation, structure and funding of pension schemes; their management and resolving any associated disputes. Often created under the form of a Trust, pensions are highly regulated and governed by a vast amount of complex and ever-changing legislation. Solicitors typically advise employers, trustees of pension funds, and pension providers.

There are several different types of pension scheme that individuals may buy into; broadly these can be divided into 'occupational pensions' and 'personal' or 'individual' pensions. All employers will soon be required to offer their employees membership of a pension scheme and from 2012 employees will start to be automatically enrolled into a scheme. An overwhelming majority of individuals who contribute to this form of retirement saving will be a member of an employer-sponsored occupational pension, not least because companies contribute to the pension pot.

Most pensions are subject to specialist tax regimes which make them very attractive as long-term investments. Members are entitled to tax relief on contributions and a tax free allowance applies to pension income. Solicitors structure pension funds to take maximum advantage of the tax regime and advise on compliance with the law and regulations in this area.

Pensions teams also work very closely with a law firm's employment and corporate departments. Mergers and acquisitions of businesses may involve the movement of employees from one company to another, alongside the assets etc of the target company. This change of ownership will have implications on who has responsibility for funding the pension schemes and questions over which employees (old or new) can become members of a scheme and whether the target company's pension scheme will even continue to exist or if it will be merged into or amended to mirror that of the bidding company.

Pension funds need to be well-funded, managed and invested for the money to grow and support the fund's members in their retirement. The difficult economic climate recently has had an impact on pension schemes with low return on investments contributing to funding deficits in pension funds. Pensioners are living longer than had been predicted or planned for and some companies are struggling to find the resources to keep paying members’ pensions for longer periods of retirement alongside funding the scheme for current employees. Such issues affect the public sector just as much as private enterprise - see Royal Mail, for example, which in 2009 had a £10.3bn deficit in its pension fund. Pensions lawyers help companies with restructuring and re-funding their pension schemes where there is such a shortfall and advise on the particular issues arising where companies collapse. Public sector occupational pensions are also subject to the will of the government and lawyers have to be able to anticipate and negotiate amendments to schemes.

Most pension schemes are set up in the form of a trust and therefore strict rules apply to those in charge of administering the money. Trustees often seek legal advice on the discharge of their duties and litigation frequently occurs where they or other parties have failed to administer the funds diligently.

One of the best examples of financial mismanagement is the Equitable Life scandal which lost its members millions of pounds.

What lawyers do

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Draft documentation relating to the creation, amendment, closure or freezing (closing funds to new members) of pension funds;
Advise employers on their obligations towards members and pension funds;
Advise on who can become a member of a pension fund, and when to pay out of a fund;
Advise on restructuring or securing pension funds which are underfunded or in financial difficulties, including on issues associated with the Pension Protection Fund;
Advise on regulatory and legislative compliance with tax regimes;
Handle disputes and litigation related to pension schemes;
Advise trustees of pension funds on their duties;
Advise companies, pensions providers and trustees on their interactions with The Pensions Regulator which regulates UK work-based pension schemes.
Assist the corporate teams on M&A deals by undertaking due diligence on potential liabilities;
Negotiating amendments to pension plans with clients.

The realities of the job

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If you're working to corporate deal timetables then the hours can be long;
Pensions law is technical, highly regulated and often closely intertwined with tax law which means a lot of time spent reading and interpreting complex statute books. A keen eye and ability to understand very technical information is essential;
Pensions lawyers need to think long-term and anticipate what policy decisions and legislative proposals the government may make in the area;
Contentious negotiations (especially in the public sector) with employee representatives/trade union representatives over proposed amendments to employees' pension plans;
Clients calling every day for advice on small issues such as when to pay funds out of a pension scheme;
Pensions lawyers need to be personable and able to explain complex law in layman’s terms.

Current issues

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Contentious issues surrounding abolishing the compulsory retirement age and raising the age at which individuals can access state pensions;
As the UK population is living longer, defined benefit (or final salary) pensions are becoming unsustainable for employers to fund. Such schemes are either being closed to new members or wound up completely.
In order to fund these pension schemes, employers are having to find alternative funding methods such as using the company's assets as security for pension fund trustees;
The duties owed by the employer funding a pension scheme to its members and how far the employer canconsider its own interests when exercising its powers. An example of this is the decision in the 2011 Prudential case which concerned the employer's discretion over the level of annual pension increases
Government changes allowing schemes to change the rate of indexation from the Retail Prices Index to the Consumer Prices Index, which may reduce the pressure on scheme funding
How to fund state pensions in the future – almost half of working age adults don't have a pension.
Automatic Enrolment of employees on to company pension schemes from 2012.