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IPE special report May 2018

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Director transfers create potential conflict

UK - A conflict of interests could occur if company directors transfer out of defined benefit (DB) schemes ahead of insolvency proceedings, suggests Winterthur Life.

Mike Morrison, pensions strategy manager at Winterthur, said the Pension Protection Fund may need to address situations where it is thought key people involved in a company's finances have transferred their own assets out of a DB scheme ahead of the pension scheme falling into the PPF.

"When schemes go into the Pension Protection Fund (PPF) it is due to an insolvency event, and there is the danger that sometimes the people who are in control of the financial side of a company are more likely to watch the insolvency event coming before anybody else."

Transferring a pension to avoid losing big chunks of their pension should it fall into the PPF might lead to a conflict of interest, argues Morrison, and the PPF may therefore need to act.

Under the Pensions Act 2004, pension trustees have a duty to monitor the employer's covenant.

There are also rules governing when someone can request a transfer, and trustees have a duty to prevent transfers within one year of retirement.

Morrison, however, worries with the advent of more people taking transfers and scheme's closing, the prospect of a conflict of interest is increasing.

He said: "My concern is with a demise in DB schemes it is very easy for people to justify transfer, and they may sometimes be the people who have got more money to transfer.

"The trust law we have [in the UK] sets aside people wearing a trustee's hat from a corporate hat. The changes to pension funds later in the year to member-nominated trustees probably may offer some assistance," he added.

But a PPF spokesman said the regulatory body currently has "no firm evidence of that occurring".

At the same time, he added the PPF has no powers to get involved in the management of a pension scheme prior to an assessment period commencing.

"Once an assessment period gets under way, there are existing statutory restrictions which govern pension scheme transfers," said the spokesman.

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