Pension plans across Europe approach legal matters in very different ways.
Unfortunately, there is still little discussion in the pensions community about the optimal involvement of legal advisers. However, an exchange of views would be beneficial both to those who under-use and those who over-use legal advisers.
Pensions have become more complex over the years and people everywhere feel that legal risks have risen disproportionally. Among the questions often raised are how best to handle the cumbersome legal side of pensions? what use should pension plan directors make of legal advisers? and how to be compliant with regulation without generating excessive costs and complications?
However, trustees rarely have a policy on the legal aspects of their pension fund. But they ought to – both as a matter of good plan governance and tocontain legal risks and potential costs arising from individual cases.
In practice, lawyers normally operate in the background of pension plans. There are some interesting comparisons with other advisers of pension funds:
q In most countries there is hardly any specific regulation for pension lawyers (unlike auditors, actuaries or investment professionals);
q Most trustees seem to fall into the categories of those who ask lawyers all the time and those who never ask;
q Pension lawyers have remained relatively unscathed by recent pension cirses, contrary to actuaries and fund managers for example.
Taking an international perspective, one can observe great variety across countries in many aspects such as the nature and form of legal advice, the role and importance of pension lawyers in the running of pension plans, as well as the overall size of the their business.
An important factor is the legal form of the pension fund. One would expect that in countries with very ‘prescriptive’ occupational pension systems, book reserve systems (as in Germany) or fully insured systems, specific legal advice is less of a necessity.
Also, pensions issues are often dealt with in the context of employment contracts, where HR at the sponsoring company gets help from an internal legal department or external employment lawyers.
There is more scope for specialist pension lawyers in countries with more ‘autonomous’ pension funds set up as foundations, corporations or associations. Such entities have their own constitutions and duties which frequently require a legal opinion.
It seems that occupational pension funds in the Anglo-Saxon trust form present the best business for pension lawyers. As an indication, the AP/IPE International Pension Funds and their Advisors lists 45 different legal advisory firms in the UK and 13 in Ireland, while all other European countries are in single digits.

In the UK , the Association of Pension Lawyers now has over 900 individual members. The business of legal advisory to pension funds has grown particularly strongly in the last 10-15 years because:
q Heavier pension regulation that imposes more duties on sponsors and trustees;
q Increasing complexity of benefit systems and investments;
q Greater risk awareness by trustees, sponsors and pension managers;
q More widespread litigation culture.
Pension law specialists often operate as a small team in big law firms and there are examples of specialist firms. In some countries independent pension lawyers are prevalent.
There is general advice in relation to pensions legislation and regulation, court rulings, ombudsman and taxation. This includes updates on new issues such as data protection, part-time work or discrimination.
A second area is the setting up, restructuring and closing of plans:
q Benefit arrangements, setting up and reorganisation, drafting and checking pension scheme documentation;
q Corporate action, advice on pensions issues connected to corporate takeovers, disposals, plan mergers;
q Benefit changes, from defined benefit to defined contribution (DC);
q Winding-up, issues in relation to closing and winding up schemes.
Legal advice on investment and actuarial issues has not been so prominent in the past, but this is changing. The fiduciary duty of trustees in investment and risk matter is being increased in several countries. A new trend arriving from the US is shareholder action against companies.
Then we have the legal advice on trustees’ dealings with other parties, including:
q Pension regulators;
q Members (eg, drafting member communication);
q Sponsors (eg, advice on surplus and deficits);
q Advisers and delegates (eg, investment management or outsourced administration agreements).
Also there is support in disputes with members, authorities, sponsors and other parties. And finally, ad hoc advice on specific issues (eg, benefit transfers, international issues) and other activities, including training for trustees and pension managers.
So can lawyers add value? A topical example is advice on funding policy. Many pension funds face a substantial funding deficit. At first sight, this looks like an issue for trustees to discuss primarily with their actuary and investment managers. However, legal advice is sometimes needed. Higher financial risks to the pension plan could also mean higher legal risk for individual executives.
Such situations become particularly virulent when sponsoring companies are in financial difficulties. Trustees are often left in a difficult trade-off position: what financial commitment to ask from the sponsor without jeopardising its economic position further? Also, when the sponsor is trying to withdraw from its pensions obligations, such as after a takeover, what is the legal position? How best to defend members’ interests?
When pension boards move into difficult new territory, good lawyers are in demand. In the above funding policy example, they should enlighten trustees as to what exactly are the relevant rules and the balance of power vis-à-vis sponsors.
However, one particular question needs to be soon clarified. Traditionally, the sponsors’ legal firm would also advise the pension plan. Can it continue to counsel trustees or is there a conflict of interest?
Another growing problem area is investment in DC plans. There are difficult questions that potentially have major legal consequences in the future. They relate to the number and type of investment funds offered to members or the question of an appropriate default option.
What risk statements need to be made? What asset allocation tools should be made available to staff? This is an area where individual members are particularly vulnerable. Contrary to the belief of some experts, the legal implications of DC investing are still unclear in many countries.
There are, of course, practical experiences where the involvement of lawyers has only complicated matters for the pensions management. Also, some people feel that they have become too influential and expensive in many Anglo-American pension trusts.
In any case, legal advisers should be the subject of a thorough regular monitoring process. When making a new appointment, pension boards are advised to run through a genuine selection process, taking into account some important specifics. It is worth:
q Questioning the resources dedicated specifically to pensions, and your particular fund;
q Investigating the speed of response to queries;
q Clarifying not only the fees, but also the charging practice and the anticipated total annual bill;
q Discussing the attendance at meetings, and how dull or pro-active the lawyer is expected
to be.
Georg Inderst is an independent consultant based in London