Victory for Employees of Maersk – Wake up call to trustees
by Dr. Ros Altmann
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The announcement today that Maersk has agreed to honour its pension promises after all is excellent news. Combined with the new Government measures announced on June 11th 2003, we have moved closer to ensuring that workers in final salary schemes can have more confidence that they will receive the pensions they are expecting. At the moment, the law only requires employers to fund up to the Minimum Funding Requirement (MFR) level. This is wholly inadequate to ensure that there is sufficient money to buy annuities for all members and deferred members and many are finding that the law only often requires employers to pay around 30% of the promised pension. These wind-up rules (together with the wholly inadequate MFR) make a mockery of the Government’s claims to have protected pension rights. Employers should not be allowed to walk away from their pension obligations, if they can well afford to meet them and it is good news that Maersk has done the decent thing, even though the law did not strictly require it.
Government should now try to ensure that other employers who have short-changed their employees in the same way are forced to make up the difference. It should introduce regulations to allow all trustees to ‘unwind’ the wind-up procedure and force employers to run the scheme as a closed fund. The scheme would be obliged to pay full pensions as they become due, for existing pensioners, and all other members as they reach retirement age. Employers would no longer be allowed to get away with offering an MFR transfer value which only buys a small fraction of the promised pension. Legal opinion is that there is nothing to prevent the Government from allowing trustees the power to do this. If the employer does not want to keep running the scheme, the winding up could be re-started, but this would then fall under the post-June 11th rules, requiring full buyout of the promised pensions. Trustees would then have ensured they had looked after the interests of all scheme members.
It is clear that the winding-up of pension schemes has been seen by some employers as an easy way of legally reneging on their commitments to provide pensions to their workforce. The UK pension system gave employers a ‘win-win’ situation. As long as markets were high and schemes were young, they could promise generous pensions without having to pay for them. Contribution holidays gave them a free lunch. Then, if markets fell and the costs of making up contributions became too high, they could wind up the scheme while only needing to pay a fraction of the true cost of the promises they made in the good times. The trustees were in a difficult position, but the environment may now have changed.
I hope that trustees and members of other schemes in wind-up with solvent employers, will use this as a wake up call. They should consider opening negotiations with the employer to make up their pension promises in full. Members were offered a ‘guaranteed’ pension, which was supposed to be secure and safe and it is only right that, wherever possible, trustees ensure that employers are made to stand by these promises.