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Study slams companies' 'insider-trustees'

UK – A new academic study has found evidence that company-nominated trustees at UK defined benefit pension schemes act in the interest of shareholders, not the pension fund.

The research also found that presence of ‘insider-trustees’ leads to higher investment in equities and lower pension contributions.

“We find evidence that supports the agency hypothesis, whereby insider-trustees act in the interest of shareholders of the sponsoring company, and not necessarily pension plan members,” write Joao Cocco and Paolo Volpin of the London Business School.

“More precisely, we find that pension plans of more leveraged firms with a higher proportion of insider-trustees invests a higher proportion of the pension plan assets into equities.

“We also show that the presence of insider-trustees allows firms to make lower contributions into the plan.” The comments appear in a discussion paper published by the Centre for Economic Policy Research.

Cocco and Volpin found no evidence to support the idea that insider-trustees enable firms to manage their tax liabilities more efficiently by integrating their financial and pension investment policies.

But they found that that the optimal number of insider-trustees “may not necessarily be zero” – as the presence of company-nominated trustees may help information flow between firm and scheme.

And there was no evidence that UK insiders were manipulating scheme valuation assumptions, as has been suggested in the US.

Meanwhile, the UK government has said 380 companies have so far provided data for the new Financial Assistance Scheme.

It said that eligible workers who were within three years of their scheme pension age on May 14 2004, when FAS was announced, will receive 80% pensions.

The FAS will apply to schemes that commenced winding up from January 1 1997 until the introduction of the Pension Protection Fund. The money will be paid as a top-up pension rather than through an annuity.

The UK has also launched a consultation on pensions and social inclusion.

"The UK has much to bring to the EU discussion table,” said pensions minister Chris Pond. “We have one of the most financially sustainable pension systems in Europe.”

Meanwhile, the Pensions Regulator, the public body established by the Pensions Bill 2004 is, looking for three executive directors, according to a job ad.

The three executives, a strategic development director, a business delivery director and a business support director, will help implement a “strategic leadership” and deliver “ a proactive, well-managed and effective regulatory service” to the industry.

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