The Technical Paper with the Green Paper described alternatives Option 1 and Option 2 for MNTs. "Action for Occupational Pensions" says "we have decided to take forward the more radical of the two options.". COPAS has learned that this was meant to imply Option 1.

The purpose of MNTs is to give members more influence in the running of their schemes. Peter Lilley said this when MNTs were introduced. In December 1998 the present Government issued a Consultation Document, "Strengthening the Pensions Framework" noting that "The crucial point to make is that MNT's must be nominated and elected by the members". "Action for Occupational Pensions" covers MNTs under the heading "Greater member involvement in running occupational pension schemes".

Option 1 is a crude box-ticking exercise that does not relate to that purpose. There will be guidelines for MNT selection but they can be completely ignored. The trustees who are labeled "MNT" can be any scheme members, perhaps the Financial Director of the company and his cronies. The fact that their selection defied the guidelines and was not "fair and open" is irrelevant to Option 1, provided the headcount is satisfied. By the test of "purpose", Option 2 is better than Option 1.

"Action for Occupational Pensions", on page 16, says "We intend that the Codes of Practice should have evidential value in proceedings where it will be determined whether a breach of the legislative provision had occurred, including decisions by the Pensions Ombudsman". This is what would occur for MNT selection under Option 2. But it will not occur under Option 1, as the Technical Paper says in paragraph 20 on page 34 and 22-23 on page 36. To make MNTs an exception to the usual approach (of putting purpose in the legislation along with guidance which is evidential) will complicate the legislation. By the test of "simplicity", Option 2 is better than Option 1.

At first glance it may appear that Option 1 will be cheaper than Option 2, since regulators will be able to turn away complaints about any particular selection process without considering that selection process. However, this is a false economy. MNTs appointed in a "fair and open" way would make a positive contribution to trusts - by expressing their views they would snuff out at source some poor trustee decisions that would otherwise lead to problems for the regulators. The cost saving that the trusts and regulators would get from genuine MNTs would exceed by far the cost of regulating the selection process in Option 2. By the test of "cost", Option 2 is better than Option 1.

The Pensions Ombudsman has written that Option 2 is better than Option 1. The COPAS response to the Green Paper analysed why it is better, in detail. The response from the Alliance of Occupational Pensioners (items 117 to 121) calls for an enforceable "fair and open" basis. We have not seen any Green Paper response arguing for preventing members complaining about selection that is unfair. By the test of "consultation", Option 2 is better than Option 1.

The Technical Paper does not address the question of why people volunteer to be member trustees. Under a fair and open selection, member trustees will have the kudos of being recognised by their peers as appropriate people to undertake a demanding task. With no guarantee the selection is fair and open there will be suspicion about the attributes they were chosen for. This will lead to fewer of the right people volunteering. By the test of "appropriate volunteers", Option 2 is better than Option 1.

In the new era, trustees will be making increasingly momentous decisions, such as whether a certain level of contributions will "put the company at risk". Having Member Trustees that the scheme members have confidence in has become even more important. By the test of scheme member confidence in their scheme, Option 2 is better than Option 1.

By every test - purpose, simplicity, cost, consultation, appropriate volunteers, and scheme member confidence in their scheme - Option 2 is better than Option 1. The government's preference for Option 1 is inexplicable, and we hope that Parliament will find it unacceptable.

Brian Marks