Speechly Bircham's Penny Cogher replies to our latest Any Other Business feature, which considered how pension schemes can get value out of their lawyers.
Achieving consensus among lawyers is an almost impossible task. This can make it difficult to properly evaluate whether or not you are getting good value from your legal team.
Knowing your legal team is providing value is important. Trustee boards range from those who get legal sign-off on any key action – not an unreasonable starting point for lay trustees to take with the potential for personal liability if they take the wrong decision – to those trustees who don’t even have a lawyer formally appointed to advise them.
Much pensions case law deals with the consequences for schemes when proper legal advice was not sought in the first place
They should all remember there is some truth in the saying: good advice is expensive, poor advice, or no advice, even more so.
The difficulty pensions lawyers face is unlike, for example, accountants; lawyers deal in words, not figures. The English language is notorious for there being more than one way of interpreting a word, a phrase, or even a whole sentence.
Each pension scheme has its own particular set of governing documentation – trust deed, rules, as well as member announcements and booklets – to be considered and used to add context to a particular interpretation. To add to the complications, it’s still not unusual for a scheme’s trust deed and rules to have no punctuation, for archaic and even arcane language to be used, and chunks of now obsolete legislation set out in full.
The effect of legislation on scheme documentation needs to be considered to see if it is overriding, or meant to be spelt out in the trust deed and rules. Legislation is never as clear as it could be – it cannot possibly cover all permutations, so there will be areas of grey.
The position is not helped when key legislation contains contradictions in fundamental definitions, for example the use of the phrase ‘money purchase benefits’ and ‘section’ is used in a non-standard way in some of the current draft legislation passing through parliament, but hopefully this will be picked up and changed during the process.
Also, as more English legislation reflects EU requirements, it is drafted on a broad principle basis which inevitably leaves room for different interpretations. The gaps, or lacunae in the law, are then filled through common law built up from individual cases brought to court, with the Lehman judgments being good examples of the lengths to which the courts sometimes have to go to fill these gaps.
Common law itself is imperfect as the law is applied to the particular set of facts being disputed. While there are the legal rules, it is not surprising there can be differences of opinion, genuinely held and sometimes fiercely argued, between lawyers.
Similar to actuaries, with their assumptions that can only be checked retrospectively, no legal opinion is categorically right unless there is a specific judgment on the point.
So while everyone involved in running a scheme can and should have a view on what the scheme’s documentation means, legal input is essential from time to time. Regular revisions to a scheme’s documentation, made as simply as possible, is money well spent, as it will reduce the legal input required and so the long-term legal costs.
The same principle applies to other pension matters, where a pension lawyer called in early can help steer the client towards to the appropriate solution, so avoiding extra costs later. Trustees will often be expected to have obtained legal advice in any event to show they have properly discharged their fiduciary duties by acting in the best interests of the scheme members.
Legal costs are a necessary expenditure for a scheme’s proper running. Indeed, much pensions case law deals with the consequences for schemes when proper legal advice was not sought in the first place, which can result in long-undetected and extremely costly errors.
So while good value is always important, there are also perfectly legitimate reasons why pensions lawyers may disagree from time to time.
Penny Cogher is head of pensions at law firm Speechly Bircham
If you want to submit a letter, send it to:
Ian Smith, Editor,
Pensions Expert, Financial Times
One Southwark Bridge
London, SE1 9HL
