TPR’s Counsell: DB schemes are not at risk of collapse

As gilt yields spiked in the aftermath of the government’s “mini” Budget, prompting collateral calls for many schemes, there were media reports suggesting that the solvency of DB schemes was under threat. These reports have been widely rejected by trustees and scheme advisers.

Speaking to the Pensions and Lifetime Savings Association’s annual conference on October 13, Counsell reiterated the message in the watchdog’s guidance — issued on October 12 — that schemes have faced liquidity pressures, rather than a threat to their very existence.

“DB pension schemes were not, and are not, at risk of collapse,” he argued.

‘There have been liquidity issues’

On October 12, TPR called on DB scheme trustees to review their liquidity, liability hedging and governance processes. 

A letter to MPs, dated October 10, also revealed that the watchdog had contacted the BoE and other regulators before the launch of its gilt-purchasing programme, to establish what actions they could take in response to volatility in the gilt market.

“It is absolutely clear that there have been liquidity issues in some of the funds, but that does not mean that pension schemes themselves are at risk of collapse,” Counsell admitted

“We’ve had to deal with liquidity issues very quickly. Indeed, we’ve seen, if anything, longer-term funding positions of pension schemes improve as a result of the increase in gilt yields.”

The value of scheme liabilities has dropped by up to 50 per cent for some schemes.

The BoE’s gilt-purchasing programme is scheduled to conclude on October 14. “There’s a lot still to be done over the next 24-plus hours, but I hope we’ll be in good shape at the end of that period,” Counsell said.

Stopping contributions ‘not economically sensible’

Counsell stressed the importance that DB and defined contribution scheme members “are not spooked into decisions they might later regret”.

Rising inflation, energy bills and mortgage payments are among factors that have driven up household costs. 

The value of some DC pots has been affected by the drop in gilt prices, with those invested in government bonds likely to have lost value.

In September, former pensions minister Guy Opperman told MPs that around 12mn people were under-saving for retirement, accounting for 38 per cent of the UK’s population.

Counsell acknowledged that some savers feel that they can no longer afford to pay into their pension, while others may be seeking access to cash from their pension pots to help pay their bills.

“[We] can’t emphasise enough, we strongly advocate the importance of saving into a pension. We urge savers to maintain their pension contributions,” he said. 

“I know that the immediacy of economically troubling events, and their destabilising frequency are a potent mix — pressing enough to push individuals into making short-term decisions that could have long-term consequences.

“Reducing or ceasing pension contributions [is] not an economically sensible reaction. The short-term benefits are relatively slight, and the long-term consequences could be relatively significant,” he continued.

“If, in extremis, savers have no alternative, or believe they have no alternative, then our strong guidance is to seek advice before taking action.”

Not being ready for dashboards ‘will have consequences’

Counsell’s final address to the PLSA’s annual conference — he will leave TPR at the end of March 2023 — covered a variety of topics beyond the current market turmoil and cost of living pressures, including schemes’ climate disclosure requirements, trustee diversity and pensions dashboards. 

Schemes with more than £5bn in assets have had to comply with Task Force on Climate-related Financial Disclosures rules since October 2021. This scope widened to schemes with more than £1bn in assets in October 2022.

Counsell revealed that 23 schemes had published their TCFD reports by July 31, while the watchdog expects around another 50 to publish their reports soon.

Pensions dashboards, meanwhile, are set to launch for some schemes next year. TPR is writing to all schemes at least 12 months ahead of their pensions dashboards deadlines, he said. 

“In the background, we are also building the systems and processes we need to regulate compliance, because not being ready in time for implementation will ultimately have consequences.”

TPR is developing a compliance and enforcement policy, which will be published shortly, Counsell added.

The regulator revealed in September that more than one-third of the pension schemes that collect trustee diversity data have no intention of using it, publishing an action plan in a bid to boost trustee board diversity.

Counsell told PLSA attendees that the regulator would issue guidance on diversity by the end of this financial year. “There is still a lot of work to do to convince trustees of the need to effectively consider issues of equality and diversity,” he said.

“In our view, these are not nice-to-have matters. They’re essential to the successful management of schemes.”