Pensions schemers
Pension schemes have had a rough ride: stock market reverses, low interest rates and members inconveniently living longer than expected. Where there is financial disappointment, there is usually a search for someone to blame.
It’s no surprise, then, that litigation involving pension schemes has risen markedly. There are technical issues behind this – but are there also lessons of general application?
First, remember that the money doesn’t belong to the trustees. Knowing that costs will be met from scheme assets, trustees can sometimes be tempted into overly-speculative claims or overly-uncompromising defences. But, as the claim proceeds, the pressure will mount. This is particularly so where the scheme is winding up and there is no employer to pick up the tab.
Consider the parables of the failed Equitable Life and BCCI litigation. The intended beneficiaries of those claims have been unstinting in their criticism of those responsible for adding substantial legal costs to their existing miseries. Remind them what losing trustees can expect.
Second, remember that most trustees are not professionals. This makes them vulnerable to over-optimistic assessments from their advisors, leading to rash litigation. However, their advisers rarely possess pensions and litigation expertise in equal measure: if the claim is litigation led, undermine their pensions expertise; if it is pensions led, attack the commerciality of their litigation advice.
Third, look for conflicts of interest. It is surprising how often the trustees involved in bringing a claim are also implicated as contributors to the loss. Their minds will be wonderfully concentrated when you point out to them that, by choosing to fight on, they would have to stand down as trustees. Few trustees agree that their removal would be in the scheme’s best interests.
And the advisors may be in a similar position. Their relationships with individual trustees can be close and longstanding. More often than you might think, there are tactical opportunities arising from conflicts which advisors have not dealt with.
Fourth, talk to the company. If there is a live sponsoring employer attached to the scheme, they are the ones with the primary commercial interest and, thus, the best reason to pursue compromise.
As in so many areas, success in pensions litigation comes from identifying and using your opponent’s sensitivities. The sensitivities may be peculiar to pension schemes but the methods for exploiting them are surprisingly familiar.
This article first appeared in our Litigation Annual Review January 2006. To view this publication, please click here to open a new window.
