Defining and protecting the pension promise

Abstract

The 1993 Jubilee Lecture considered two fundamental questions addressed in the report of the Pension Law Review Committee: when an employee joins an occupational pension scheme, what should the law consider to be the fundamental pension promise; and how should that promise be protected? The factors affecting the employee's expectations are examined in the light of the pension promise, and the conclusion drawn that certain expectations relating to accrued rights should be protected by law, although the employer should be able to control its financial commitments as to future service. The status of surplus, in both an ongoing scheme and in the event of a wind-up, is also considered, and recommendations made as to the use of a surplus if not already dealt with by the scheme rules. The two principal forms of protection for the pension promise which were recommended by the Pension Law Review Committee are discussed; firstly, the introduction of a minimum solvency standard, backed up by tighter rules for the prompt payment of contributions and by enhanced monitoring and reporting requirements for scheme auditors and actuaries; and secondly, the setting up of a statutory compensation fund to cover a deficit in the event of fraud or theft, to be financed by a post-event levy on schemes.