Pension Funds: A Fragmentation of Trust Law?
| Date | 01 July 1993 |
| DOI | http://doi.org/10.1111/j.1468-2230.1993.tb01881.x |
| Author | Graham Moffat |
| Published date | 01 July 1993 |
THE
MODERN
LAW
REVIEW
Volume
56
July
1993
No.
4
Pension Funds:
A
Fragmentation
of
Trust Law?
Graham
Mofffat*
Introduction
The single good deed Robert Maxwell has done for pensioners generally is to
ensure
that
the issue
of
the ownership and control of pension schemes
is
now
high up on the political
agenda.
The perceptiveness of
this
observation is illustrated by the response of the Government
to the valuable report of the House of Commons Select Committee
on
Social Security,
under the chairmanship of Frank Field
MP,
into the ownership and control of pension
funds. In particular, the Committee recommended and the Government subsequently
accepted* that
an
inquiry should be established to review the legal basis on which
pension funds operate. The strong preference of the Select Committee was for a
new legislative framework to replace primary reliance on what it perceived as an
inappropriate law of trusts. Indeed, the Committee found it hard to understand why
‘the political parties have allowed a system of pension provision to arise for which
the legal basis is medieval
tmt
law’
(emphasis added).3 It is that casual reference
to ‘medieval trust law’ that prompted this article.
It could be inferred from the tenor of the criticism that it is the antiquarian nature
of trust law, comprising a set of rules derived from and devised for facilitating family
financial dispositions, that renders it unsuitable as a legal basis for pension funds.
But although references to ‘medieval trust law’ may provide fodder for tabloid
editorial writers
or
inspiration for
cartoonist^,^
they hinder rather than help
*School of Law, University
of
Wanvick.
I
would like to thank Richard Nobles
for
his helpful comments on a draft of this article.
1 House of Commons Select Committee on Social Security, Session 1991-92, Second Report,
The
Operation
of
Pension
Fundr
(1992) para 13, HC 61.
2
A
Committee of Inquiry, the Pensions Law Reform Committee, has been set up with a wide-ranging
brief under the chairmanship of Professor Roy Goode QC. See HC Deb vol209, col 19
(8
June 1992).
The Goode Committee is expected to publish its recommendations in mid-1993.
3
The Select Committee’s Report is but the latest in a line of reports stretching back to 1976 expressing
scepticism about placing reliance on the law of trusts. See Occupational Pensions Board (OPB),
The
Role
of
Members in the Running
of
Schemes
(1976) Cmnd 6514; Committee to Review the Functioning
of Financial Institutions,
Report
(1980) Cmnd 7937; OPB,
Greater Security
for
the Rights and
Expectations
of
Members
of
Occupationul Pension Schemes
(1982) Cmnd 8649; Gower Report,
Review
of
Investor Protection
(1984) Cmnd 9125. Cf, though, government affirmation of support
for
the law
of trusts expressed in a consultation paper issued by the Department of Health and Social Security
(DHSS) in 1984, and the OPB’s apparent volte face in a 1989 report,
Protecting Pensions,
Cm 573,
where it accepted (para 8.14) that ‘Trust law should continue as the legal basis for pension schemes.’
4
See
eg the cartoon by Kippa Williams,
The Guardian,
10
March 1992,
p
15, delightfully depicting
a pith-helmeted archaeologist discovering the hieroglyphics of pension fund law inscribed on cave walls.
47
1
@
The Modern Law Review Limited 1993 (MLR 56:4, July). Published by Blackwell
Publishers, 108 Cowley Road, Oxford OX4 1JF and 238 Main Street, Cambridge,
MA 02142,
USA.
The Modern
Law
Review
[Vol.
56
attempts to formulate a considered judgment on the supposed weaknesses of trust
law. Such remarks obscure both the extent to which common law rules
are
subordinate
to the precise terms of trust deeds and also the legal and financial difficulties likely
to confront disgruntled members of pension schemes seeking redress through the
court^.^
More important for the purposes of this article, the criticism appears to
assume the existence of a body of rules and of standards of interpretation common
to all non-charitable express trusts.
The assumption of a high degree of homogeneity in the law of trusts is under-
standable though questionable. The domain of occupational pensions has, with one
or two notable exceptions,6 attracted scant critical attention from the legal academic
community when compared with other areas of commercial activity where equitable
concepts have intruded.7 One explanation for
this
Iacuna has been the conspicuous
absence until recently of case law, the stuff
of
traditional academic scholarship.
Moreover, when the question did surface in litigation in
1984,
a judgment of Sir
Robert Megarry simply reinforced the view that the basic principles of the law of
trusts applied without modification to trusts of pension funds.* Although the case,
strictly speaking, relates only to the investment duties of trustees, the tenor of the
judgment supports a broader sweep for the propo~ition.~ On the other hand, with
an almost stubborn insistence doubts about the appropriateness of the law of trusts
have been rekindled,I0 although in the different context of surpluses in pension
funds. The roIler-coaster performance of the
UK
economy during the last decade
left its mark here as elsewhere.
For
reasons to be described shortly, many pension
funds appeared to possess a notional surplus of assets over liabilities.
Not surprisingly, given the sums involved,” the question of ownership of such
surpluses became ‘the hottest issue
in
pensions law.’12 So contentious is it now that
the Select Committee on Social Security felt unable to come to a conclusion on this
key issue, recommending instead that it should
be
a primary concern of any committee
of inquiry.13 Questions of ownership, though, do not deign to wait on deliberations
of
committees or on actions of governments. Instead, disputes about ownership
of
5
6
7
8
9
10
11
12
13
cf Select Committee Report,
op cit
n
1,
paras
41, 50
and minutes of evidence where these issues
are canvassed.
See, in particular, Nobles, ‘Who is Entitled to the Pension Fund Surplus?’
(1987)
16
ILJ
164;
and
‘The Exercise of Trustees’ Discretion under a Pension Scheme’
[1992]
Journal ofBusiness Law
261.
See
generally Goodhart and Jones, ‘The Infiltration
of
Equitable Doctrine into English Commercial
Law’
(1980) 43
MLR
489;
Austin, ‘Commerce and Equity
-
Fiduciary Duty and Constructive Trusts’
(1986)
OJLS
444;
Finn (ed),
Equity and Commercial Relationship
(Sydney: Australia Law Book Co,
1985);
Rickett, ‘Different Views on the Scope of the Quistclose Analysis’
(1991) 107
LQR
608;
Mckendrick (ed),
Commercial Aspects
of
Trusts
and Fiduciary Obligations
(Oxford: Clarendon Press,
1992).
‘I
can see no reason for holding that different principles apply to pension fund trusts from those which
apply to other trusts. Of course, there are many provisions in pension schemes which are not to be
found in private trusts, and to these the general law of trusts will be subordinated. But subject to
that,
I
think that
the
trusts of pension funds are subject to the
same
rules as other trusts.’
Cowan
v
Scargill
[1984] 2
All ER
750, 763.
cf Sir Robert Megarry’s subsequent extra-judicial comment that ‘[plut into a nutshell, the case on
principle was simply that trustees are trustees even if they are trustees of a pension fund, and they
are subiect to the established rules for trustees’ in Youdan (ed),
Equify Fiduciaries and
Trusts
(Toronto:
..
--
Carswell,
1989) 149, 155.
cf the criticism expressed by Farm and Maxton in
(1986) 102
LQR
32,33
and more generally Moffat
and Chesterman.
Trusts
Law:
Text
and Materials
(London: Weidenfeld,
1988)
Ch
14.
In
1990-91, 1,789
schemes were reported as having surpluses at an estimated aggregate value of
€4,159
million.
Nobles,
‘Who
Owns a Pension Surplus?’
(1990) 19
ILJ
204.
Select Committee,
op cit
n
1,
para
284.
See
also Occupational Pensions Board
(1989),
op cit
n
3,
which declined to formulate any general doctrine of ownership of surpluses.
472
0
The
Modern
Law
Review
Limited
1993
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