UK - Paul Myners, the Gartmore chief executive reviewing the UK pension fund industry, has recommended to chancellor Gordon Brown and secretary of state Alistair Darling that UK pension funds employ custodians to oversee their assets. In his report, Myners said making independent custodians compulsory would protect scheme members from the risk of fraud. "This would make it more difficult for improper use to be made of the pension fund?s assets. One of the objections in the past to this idea was that custodians were not regulated. They now are, and I recommend that there should be a mandatory requirement for their use." He said.

The UK's National Association for Pension Funds has pressed for this ever since the Maxwell pension scandal in 1991. "It was the one element that was seriously overlooked by the 1995 Pensions act," says Sheila Longley, spokeswoman at the NAPF. "It's not going to cost the government anything to introduce and it seems a very sensible measure," she says. In the report, Myners describes pension fraud as rare and since 1997, there has only been one successful claim for fraud, costing around £38,000. Ironically, a week after publication, there were reports that trustees of a £3m UK company pension scheme had vanished, allegedly taking the assets with them.

Custodians will benefit from the move if it is accepted but the extent of UK pension funds not employing an independent custodian is unknown as it isn't monitored by the NAPF. It is believed percentage-wise most UK pension fund assets are at an independent custodian yet many of the smaller and medium-sized funds do without and will have to employ the services of one if it becomes compulsory. Michael Short, head of UK sales and marketing at State Street, says the group whole-heartedly support the recommendation. State Street has around 20% of UK pension funds assets and Short says the move will therefore have little effect on their overall business.

According to Stewart Ritchie, director of pensions development at Scottish Equitable, the extra burden on pension schemes in appointing custodians would be relatively small. "To many of us it always was a source of puzzlement as to why it wasn't a requirement under the Pensions act 1995 that pension funds should have independent custodianship," he says. Ritchie is confident the recommendation will be adopted as a result of the Myners report. "I really can't see any argument justifying a continuation of the practice," he says.