UK -  Inadequate governance at the vast majority of UK scheme means their rules do not reflect current legislation for winding up lump sums, suggests pension buyout firm Paternoster.

Under legislation introduced in the 2004 Pensions Act, companies winding up pension schemes can offer employees with less than £16,000 in the scheme the option to take their pension fund as a lump sum.

But Ed Gervis, risk and compliance manager at Paternoster, told IPE today: "Most trustees, well over 50%, so far have not ensured their rules are perceptive of current legislation."

He added: "It means that trustees are in a difficult position where they're looking to implement the scheme rules, but the scheme rules are silent on what they should do."

There is no set method for calculating how much of a lump sum scheme members are entitled to, which might penalise some members, notes Gervais.

"There are different ways of interpretations what trustees should do, and some interpretations might mean that these people are considered to have retired early, which means that potentially some very penal deduction are made in arriving at what their pension amount is," he added.

Gervis also argues while a lot of the legislation puts the burden of the calculation on the scheme actuary, the scheme actuary is in a similar situation as the trustees, because of a lack of clear actuarial guidance in circulation.

Though Paternoster has not been involved in any wind-up exercises to date, the company see this as a problem that might occur in the future.

"The issue is that for most schemes that are ongoing, the trustees are not focusing on this and then something goes wrong with the sponsor and the scheme is effectively left without a sponsor and it is only then that the trustees focus on this," concluded Gervis.

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