Pensions Update, Winter 2015

EMIR (EUROPEAN MARKET INFRASTRUCTURE REGULATION) - REGULATION 648/2012

We provided an update on the European Market Infrastructure Regulations (EMIR) in our Summer Pensions Update. EMIR is an EU regulation which affects schemes using derivatives (including those which use them solely for hedging through their custodian). These regulations require certain over-the-counter (OTC) derivatives contracts to be cleared centrally. Pension schemes were given a three-year exemption from the OTC central clearing requirement, which was due to expire in August of this year, due to the need to provide significant amounts of cash collateral in order to meet margin calls - an inefficient way of holding assets. However, the European Commission has acknowledged the difficulties the EMIR regime causes for pension scheme trustees and has extended the exemption by a further two years to 15 August 2017.

Trustees operating hedges or using derivatives held directly for liabilities driven investments purposes should continue to work with advisors to ensure their compliance with the full EMIR regime when the exemption period ends.

UK CASE LAW

In the UK some decisions of the Pensions Ombudsman and the High Court are of interest.

Bridge Trustees Limited (PO-763)

This was a decision of the Deputy Pensions Ombudsman (the "Ombudsman") in the UK, handed down on 31 March 2015, which held two trustees personally liable for payments made in breach of trust. The Ombudsman held that the two trustees were not protected by the exoneration and indemnity provisions in the scheme trust deed and rules and ordered to make a payment of c.£200,000 to the scheme.

Facts

The facts of the case were as follows:

The indemnity clause granting protection to the trustees did not extend to fraud or "deliberate disregard of the interests of the beneficiaries" by the trustees. Two of the trustees were directors of Pilkington's Tiles Limited ("Pilkington"). On 24 December 2009, Capita, the scheme administrator, transferred excess DC contributions to Pilkington's bank account (the "Transfer"). Bridge Trustees Ltd were appointed trustees after the company went into administration and made a complaint to the Pensions Ombudsman that two of the previous trustees contravened rule 5.6 of the scheme rules in relation to excess contributions and failed to act in the members' best interests. The trustees admitted they had authorised the repayment to Pilkington but claimed that they were advised by Capita that the excess contributions must be repaid under the rules of the Scheme. Rule 5.6 of the scheme provided that excess employer DC contributions, resulting from early leavers whose...