LONDON - Pension industry officials plan to mount an 11th-hour effort to include an amendment requiring independent custody of pension plan assets in the U.K. pensions bill, but they admit the prospects are bleak.
Sources say the U.K.'s Department of Trade and Industry have blocked a National Association of Pension Funds-backed amendment that would require pension plan trustees to hire independent custodians to oversee plan assets.
Under the pensions bill, employers legally could custody plan assets, though in reality most assets are custodied by external money managers.
Many pension experts say a custody requirement would help prevent recurrence of a Maxwell situation, where the late publishing tycoon plundered company pension assets to support his failing private companies.
Without a custody requirement, the pensions bill is weak, some argue. "We see no protection for pensioners in the pensions bill," said W. Brian Matthews, finance director of ESN Pension Management Group Ltd., London, and a member of the Forum for Independent Custody, an ad hoc industry group.
DTI officials are unconvinced the costs would outweigh the benefits. A DTI spokesman said the Department of Social Security, the agency with primary responsibility for moving the pensions bill, was responsible for blocking the amendment. But the spokesman did say DTI officials opposed the provision.
The custody amendment "didn't offer sufficient protection to justify the costs of doing it," he said. In addition, government officials have voiced concern about how to regulate custody and the costs involved.
At least four agencies currently play a role in regulating custody; consolidating regulatory authority in one agency could prove to be difficult. Banks, insurers and money managers all are regulated by separate agencies, plus the Securities and Investment Board also has been reviewing custody issues.
But Geoff Lindey, chairman of the NAPF's investment committee, said compliance costs are negligible, and regulatory costs should not be much. "You have to weigh up the costs of not having this in 10 years' time, in having another Maxwell," he said.
Despite the government's negative stance, officials at the NAPF and the Forum for Independent Custody plan a last-ditch effort to try to convince the government otherwise.
Donald Dewar, the Labour Party's Shadow Minister for Social Security, has submitted an NAPF-backed amendment that would mandate independent custody.
The amendment would ensure that trustees made a conscious decision over who custodies pension assets. At present, custody often is just part of the money management contract and is not priced separately.
It is not clear whether Mr. Dewar will advance the amendment before the special committee addressing the bill, or will wait until the first week of July when the full House of Commons will consider amendments to the bill. Under parliamentary rules, once an amendment is defeated during one stage of the bill it cannot be reconsidered later.
But the outlook is bleak. The NAPF is failing to win needed support from some of its potential allies. Stephen Tanner, director general of the Institutional Fund Managers Association, London, said he does not think it is up to the government to mandate custody.
And Susan Anderson, head of pensions for the Confederation of British Industry, London, a powerful employers group, said the CBI was satisfied with the Goode Committee report, which did not require mandatory independent custody. She did say the association will take another look at the issue.
Even though officials expect the amendment to be defeated, they hope to set the stage for future debate.
"The objective is to keep on pushing away, getting as much cross-party support (as possible), and, if necessary, embarrass them," Mr. Lindey said.
"We will try to muster as much support as we can. Sadly, it doesn't seem that we can win," he added.
In lieu of a win on independent custody, pension industry officials plan to press government officials on their commitment to require additional disclosure on how custody is provided.
Industry officials want the government to mandate disclosure of the costs of custody, which would lead to unbundling of such costs from money management fees and would cause trustees to focus more on the issue. In addition, they seek to require disclosure of how much risk firms are taking on in providing custody.