The Pensions Regulator

Pensions Regulator prohibits scheme trustee

Ref: PN07-01
15 January 2007

The Pensions Regulator has used its powers to prohibit David John Foster from acting as a trustee of any trust-based pension scheme, after judging him unfit to perform the role.

In his capacity as Chairman of the Trustees of the Ericsson Employee Benefits Scheme, Foster misrepresented the pension benefits of executive members to senior management within Ericsson. These misrepresentations added as much as £13.4 million to transfer values, increasing pension liabilities of the final salary scheme and the sponsoring employer.

Foster falsely claimed that executive members’ benefits accrued at a 1/30th rate and were entitled to receive unreduced benefits from the age of 50. He presented this as existing entitlement, rather than proposals requiring approval from the parent company, despite knowing that this would have a detrimental effect on the fund.

Foster also accepted for himself an exceptionally favourable second deferred pension, which had the potential to affect the benefits of other scheme members, without informing or seeking approval from other trustee directors.

After being alerted to the planned executive enhancements by a whistleblower’s report, the Pensions Regulator immediately appointed an Independent Trustee to the Ericsson scheme to secure funds and began an investigation into Foster’s conduct. As a result, planned executive transfers were cancelled and Foster’s second pension was held pending investigation. Two transfers worth £2.46 million which had already been paid were recovered by the sponsoring employer Ericsson Limited.

June Mulroy, the Pensions Regulator’s executive director of business delivery, said: “David Foster abused the huge responsibility of trust invested in him by Ericsson and let down the members of the pension scheme. It is absolutely right and proper that he has no further involvement as a trustee of any pension scheme.”

The regulator’s Determinations Panel voiced concerns over Foster’s honesty, integrity, competence and willingness to understand and fulfil the responsibilities of his role. It judged that Foster was unfit to act as a trustee of any trust-based pension scheme.

The panel also found that Foster had failed to identify and handle conflicts of interest arising from his roles as chairman of the corporate trustee and as human resources manager. He excluded other trustee directors from significant decisions and failed to communicate with them to the extent that some trustees were neither aware of the existence of the executive scheme, nor of the financial impact of the proposals on scheme members.

Ericsson Limited and Ericsson Sweden (Telefonaktiebolaget LM Ericsson) cooperated fully with the Pensions Regulator during investigations.

Editor's notes

• The Pensions Regulator's Determinations Panel determined that David John Foster was not a fit and proper person to be a trustee of trust based pension scheme in general in accordance with Section 3 of the Pensions Act 1995 (as amended by Section 33 of the Pensions Act 2004).
• A copy of the determination notice, which was issued on 20 November 2006, giving full details of the prohibition, may be obtained from the Pensions Regulator press office.
• Foster was appointed as a director of Ericsson Employee Benefits Scheme Limited in November 2002, and was chairman of the scheme's board of directors between July 2004 and September 2005 when he resigned.
• The actions for which Foster was prohibited took place between April 2004 and June 2005. The Pensions Regulator was alerted by a Whistleblower's Report on 1 July 2005 and appointed an independent trustee on 7 July 2005.
• The determinations panel is responsible for making formal decisions relating to individual cases where the Pensions Regulator seeks to use its powers. These decisions are called 'determinations'. The panel has the power to make a determination where:
  • the regulator seeks to sanction a breach of pensions law;
  • a problem has arisen in a scheme that the regulator considers can be put right with the use of one of its powers; or
  • an application has been made by trustees, managers, members or employers of a scheme for the regulator to use one of its powers.
• The Pensions Regulator is the regulator of work-based pensions in the UK, with wide-ranging and flexible powers under the Pensions Act 2004. The Pensions Regulator's powers include the ability to:
  • collect detailed scheme information;
  • issue improvement notices and third party notices, enabling the regulator to ensure problems are put right;
  • freeze a scheme that is at risk while the regulator investigates;
  • prohibit trustees who are judged not fit and proper to carry out their duties; and
  • issue a contribution notice or financial support direction

  The Pensions Act 2004 also imposes a statutory obligation on 'whistleblowers' to report suspected breaches of the legislation to the regulator.