In its recent consultation on protecting defined benefit (DB) pension schemes, the Department for Work and Pensions (DWP) identifies a key priority as “measures to help employers, trustees and the Pensions Regulator work together to better secure the pension promises”.
As anyone who’s been involved in large scale corporate transactions will know, even in relatively stable political and economic conditions, negotiations around DB schemes can take on a life of their own, sometimes dwarfing time spent on the underlying transaction itself.
At best, discussions involving DB schemes, whether or not any transaction is on the cards, can resemble a family fallout. They will usually involve a range of personalities, each with their own idiosyncrasies, interests, strategic priorities, and diverse duties to fulfil. But at the same time, all parties generally have a deep-rooted understanding that those around the table feed from the same bowl, are inextricably bound together, and are best served if they stay that way.
Chatting recently to Louise Webb, an experienced lawyer specialising in mediation as a highly cost-effective alternative to dispute resolution, I was struck by the potential benefits of mediation for the pensions sector, and reminded of what Abraham Lincoln said – ‘A good settlement is better than a good lawsuit’.
Courts often invite parties to explore mediation; corporates use it to great effect to avoid excessive strain on senior resources, to save reputations, and to preserve internal and external relationships; and a range of organisations are increasingly turning to mediators to resolve seemingly intractable disputes. But mediation as a way of resolving issues within the pensions “family” is relatively underused.
Mediators operate within a confidential and without-prejudice process and help parties to find a resolution to conflict, including the most complex of multi-party, multi-billion pound, multi-jurisdictional disputes. They are viewed as “objective realists”, with no skin in the game; capable of bringing a different perspective.
Mediation does not end in “victory” for anyone around the table. But, as Louise told me, “… it does encourage everyone to look forward not back, to explore the parties’ broader interests and then to seek out common ground.” It’s then not hard to see how this helps all stakeholders to work toward a solution that balances financial and business security and adequate protection within a workable time frame, whilst reducing uncertainty or excessive financial strain and distraction for those involved.
Think back to the 2001 Unilever/Merrill Lynch case, only settled after 28 days in court. The judge concluded: “it seems entirely questionable whether, with more determination, and willingness to adopt a more flexible approach at the time of mediation, a mutually acceptable compromise could not then have been achieved.” Mediation has been used to good effect in other, subsequent situations, such as the introduction of a new collective DC scheme for Royal Mail scheme members, and most recently by the Universities Superannuation Scheme, Universities UK and the UCU union, over future valuation processes.
But as James Phillips recently wrote in Professional Pensions, 2019 is set to be “a bumper year” for pensions litigation.
So is the DWP potentially missing a trick by failing to encourage those involved DB pensions to deploy the powerful tool of independent mediation?
The Government has now set out its next objective to review tPR’s guidance to clarify expectations as to what employers and trustees should do. This provides the perfect opportunity to consider how mediation could be used to greater effect.
A bona fide mediation process could provide valuable evidence of reasonableness for trustee and employer alike. It also seems to provide a solution for respondents to the recent consultation highlighting a need for “education that promoted constructive relationships between trustees of Defined Benefit pension schemes and sponsoring employers”.
Confidential, without prejudice, highly cost effective and quick to arrange, there should be little to lose and could be a great deal to gain.
As published in Professional Pensions – click here