Occupational Pensions - OPRA hits the high Cs

Officials at OPRA (the Occupational Pensions Regulatory Authority),than the setting up of OPRA. Theresa Sweeney finds out how the industry thinks it has performed in its first year. the industry’s regulator, will be cutting into the organisation’s first birthday cake in April to celebrate its progress so far. Pensions experts seem pleased with the initial results, but are asking whether the novelty will have worn off.

OPRA was set up by the 1995 Pensions Act in the wake of the Maxwell pensions scandal. Maxwell used pensioners’ money to prop up the ailing companies in his empire.

When it was discovered Maxwell had gone overboard, the pensioners were left with nothing.

‘Teeth were introduced in the 1995 Pensions Act that included sanctions, penalties and civil and criminal legislation. These have all led to pensions regulation being taken more seriously,’ says Richard Tewkesbury, tax consultant at Fitzwilliam Financial Research, a subsidiary of BDO Stoy Hayward.

OPRA is the teeth of that Act and they started biting in April 1997. The regulator has been given power by the Act to attack those companies that fail to comply with new regulations on funding requirements, payment of contributions, submitting accounts, appointing professional advisers and other such matters.

Time to ‘blow the whistle’

In addition, accountants and auditors must ‘blow the whistle’ on pension scheme trustees or administrators whom they suspect are not following the rules properly. It also helps people trace their pensions through its Registry of Pensions when a company has folded.

So far, the new regulator has made a good impression. Andrew Evans, partner in charge of pensions audit at Price Waterhouse, says: ‘OPRA has a positive and healthy spirit. This is a professional new area for pensions, but OPRA has been open, accepting feedback and willing to act on comments.’

OPRA relies on accountants, auditors and trustees to report poor practice in pension schemes and has not been disappointed with the level of support it has received.

‘We have a system of reporting non-payment of contributions, as we have a duty to report this. We report about five or six schemes a month to OPRA,’ said Adrian Comey, pensions technical manager at Abbey Life Investment Services.

To date, OPRA has received more complaints than were expected. Between 6 April 1997 and 31 December 1997, it had more than 16,000 reports and enquiries on occupational pensions. It says 7,146 of these ‘related to compliance shortcomings, alleged breaches and other cases that required further investigation and research by regulatory staff at OPRA’.

Some of the common cases OPRA deals with include the late preparation of statements of investment principles, the failure of trustees to keep records of transactions and employers’ failure to hand over members’ contributions.

Most pensions experts have been pleased by the number of such cases reported and surprised by what is described in OPRA’s bulletin as ‘pension scheme trustees and administrators voluntarily telling OPRA about their shortcomings and, most importantly, about what they are doing to put things right’.

David Cresswell, communications manager at OPRA, says: ‘Over three-quarters of the reports have been voluntary – that is, they haven’t been legally required. From there, we can make sure that money put aside by employees for their retirement is safe and the pension scheme is well run.’

But the high level of reporting could be damaging to the regulator. OPRA must ensure the regulatory compliance of more than 230,000 occupational pension schemes, but it cannot look into every single pension fund. Instead, it deals with cases by exception – those that have reported discrepancies to them. ‘I’m concerned about the volume of complaints reported and the cost of the exchange of information relating to these, as this will be quite substantial,’ says PW’s Evans.

Both serious and trivial flaws

The large number of complaints OPRA receives could prevent it from distinguishing the more serious flaws in pension administration from the trivial ones. ‘OPRA has to deal with a stream of relatively minor breaches reported to it, which makes it more difficult to spot any important breaches or the significant loss of assets that may have been reported by a trustee,’ says Evans.

‘The potential loss of assets was the main reason OPRA was set up. If matters relating to this are being investigated then it’s doing its job.

But matters of relatively little importance create a cost burden.’ Comey believes OPRA is as effective as any pensions’ regulator could be. ‘OPRA has made it more difficult for criminals but in itself it won’t stop them.’

On the coalface, those dealing with OPRA have high praise for the way they have been treated and the openness of the new regulator. ‘I’ve found OPRA approachable. They were very capable, more so than the other regulatory authorities,’ says Tewkesbury.

Tim Davy, partner at Deloitte & Touche and chairman of the pensions group, believes that although OPRA receives a large number of reports, it is still in a good position to deal with them efficiently. ‘OPRA is set up to guard pensions against risk.

It has a detection system to distinguish the trivial cases from the serious ones. It gauges the seriousness of breaches and decides what to do,’ he says.

OPRA’s next step is dealing with those who break the rules. Some of the sanctions that the regulatory body can impose on pension fund trustees include fines, bans and, in the cases of abuse or fraud in the schemes, criminal prosecution of trustees and administrators. But the regulator does not want to appear be too heavy-handed.

‘If we over-regulate, the net result is trustees will say, “We don’t have to do this”, and companies will no longer offer pension schemes,’ said Cresswell. ‘The new legislation will then have acted as a catalyst to bring an end to occupational pensions.’

This is not the intention of the legislation. So far, OPRA has not found itself investigating any criminal charge that would act as a testing ground for its strength, as it seems criminal proceedings appear to be the last port of call.

Cresswell is clear why OPRA is unwilling to go to court. ‘The money paid into occupational pension schemes is the employee’s, so an employer keeping hold of it is committing fraud. In some cases, if the employer were jailed for this the company would probably suffer, as all the employees might lose their jobs and their pension funds. We look for practical ways to prevent this,’ he says.

One of the practices used to keep a pension in operation is to replace the trustees of pension schemes with one or more of OPRA’s own panel of trustees or experts. These can be volunteers, professional practitioners, such as insolvency practitioners, and corporate trustees.

But in some breaches of the Pension Act the regulatory body can do very little. ‘If something went wrong before 6 April 1997 and at that time it was not a breach of the Pensions Act but now is, we can’t do anything,’ says Cresswell.

The bulletin describes one such scenario. OPRA found it could do nothing about the disappearance of funds from the Retirement Benefits Plan of HH Robertson (UK) because the events occurred before 6 April 1997. The case was referred to the Serious Fraud Office.

OPRA still ‘on honeymoon’

Davy says OPRA is a good deterrent to criminals when it is imposing fines on people who have breached the Pensions Act. However, as OPRA is still in its honeymoon period, it has not been tested to its full potential. ‘We are almost expecting such an event when the regulatory authority can be seen to be working – if there is a serious enough breach of the Pensions Act, subject to criminal proof,’ says Davy.

Like many pension experts, Davy says OPRA is still in its early days, but he has been pleased with its performance to date. ‘OPRA is in very good hands with its senior people.

It is a question of ‘wait and see’ as to how well it will perform in the future.’

If OPRA can balance the amount of compliance work it has to do on smaller cases with the work that will be needed to deal with any large criminal case, it will succeed. But it has already won over the support of the pensions industry, which in itself is half the battle.