Executives at the Pensions Regulator have been lambasted by MPs for being poorly informed and undermining confidence in pensions, after they appeared unable to answer questions on subjects including “a major KPI” of defined benefit scheme health.
Members of the Work and Pensions Committee and Business, Energy and Industrial Strategy Committee tore into chief executive Lesley Titcomb on Thursday for not knowing how many schemes had unusually long recovery periods.
Titcomb and colleagues were also unable to give the joint inquiry into the collapse of Carillion an assessment of just how many schemes present serious concerns about their overall health.
We were not alone in thinking that this was a relatively strong, stable business
Mike Birch, the Pensions Regulator
When pressed, executive director for front-line regulation Nicola Parish said this figure would be less than 200, the rough number of schemes.
Explaining her inability to answer, Titcomb said the number of schemes with recovery plans longer than 10 and 16 years – labelled a major key performance indicator by Conservative MP Heidi Allen – was a number that “changes constantly”.
Committees sound off
But the joint committees were unimpressed. “If we had knocked into you in a bus stop we would expect you to be better informed than that,” said Work and Pensions Committee chair Frank Field.
Rachel Reeves, chair of the Business, Energy and Industrial Strategy Committee, asked: “Are you not on top of the detail of the schemes that you’re regulating?”
“You knew you were going to come and give evidence today,” she added. “You’re going to have to come back to give this information again because you don’t have the detail.”
Titcomb disputed this assessment. After the session, a spokesperson for the regulator said it would clarify these figures in writing shortly.
Regulator secured funding uplift
Specific questions from the committees about the regulator's intervention in the Carillion case revealed little that was untoward.
The regulator’s main intervention took the form of a threat to use its section 231 power to set a schedule of contributions in 2013, when the 2011 valuation could not be agreed and trustees appealed for assistance.
That threat, along with the appointment of a skilled person to analyse the company’s ability to fund the scheme, led to a funding offer of £35m scaling up to £42m a year, improved by a total of £85m over 15 years.
Carillion disclosures investigated
Clearly, that agreement was not enough to secure pensions for Carillion’s members.
But Mike Birch, director of case management at the regulator, argued that the regulator’s decision to allow a long recovery period was largely informed by the health of the sponsor as stated in public accounts.
“We were not alone in thinking that this was a relatively strong, stable business,” he said, citing rising share prices, government contract awards and good access to bank credit facilities.
Now that assessment has been shown to be incorrect, the committee heard that the regulator is working with the Financial Reporting Council, Insolvency Service and Financial Conduct Authority to decide whether to take action against individuals involved.
Unite calls for contributions inquiry
Unite, the country's largest union, has called for a select committee inquiry into missing contributions to public sector pension schemes owed by Carillion.
As an admitted body, the outsourcer had paid into to the NHS, Civil Service and local government schemes.
Workers last contributed to their pensions in December, but the schemes have not received either employee or employer contributions, according to the union.
“Money has been taken from workers’ wages for their retirement and that money appears to have disappeared into the ether," said Unite national officer for health Colenzo Jarrett-Thorpe.
Once the company’s financial woes had become apparent, the committees heard it was unable to offer enough funding to merit a regulated apportionment arrangement.
“Decisions around corporate and pension finance are really hard to get right, and hindsight is a wonderful thing,” said David Brooks, technical director at consultancy Broadstone.
“On balance, they were probably doing the right things based on their understanding of the strength of the covenant as they honestly assessed it.”
The next step
As the committees tried to discern how to avoid a similar scandal in future, Titcomb offered suggestions for further regulatory powers to be granted in the forthcoming white paper on DB.
She said her first priority for reform was improving the funding regime, followed by securing adequate resources and implementing the regulator’s new “clearer, quicker and tougher” approach.
Specific improvements would make the section 231 powers easier to use and bolster the contribution notice regime.
“That may actually be more helpful than an ability to fine, because we think then you would get more money into the scheme, rather than a fine, which would go to the Treasury,” Titcomb said.
The regulator rejected the suggestion that making RAAs more accessible would have helped members, citing Carillion’s lack of assets to pledge to a Pension Protection Fund-plus deal.
Titcomb frequently referred committees to the regulatory objective to ensure the sustainable growth of sponsors. However, she did not call for it to be removed, stating that DB schemes are best off with a healthy sponsor.
Matthew Giles, a partner at law firm Squire Patton Boggs, said improvements to the contribution notices could be considered, but a change in attitude should be the priority.
“I remain sceptical about whether further powers are needed, because they could probably make better use of the powers they have,” he said.
