The chair of the Work and Pensions Committee has warned that the government may be putting retirements at risk if it does not bring forward legislation to regulate defined benefit superfunds.
In a letter to the Department for Work Pensions, Frank Field MP questioned the government on what new protections it will put in place to protect DB pension schemes.
In the correspondence, pensions minister Guy Opperman refused to confirm whether a new regulatory regime for consolidators would be included in the upcoming pensions bill, leaving doubts about when the new legislation will be brought forward. Shadow pensions minister Jack Dromey has previously signalled that more contentious items, including superfunds, will be left out to expedite its progress with limited parliamentary time.
Mr Opperman wrote: “The content of the Queen’s Speech is a matter for Her Majesty the Queen and the prime minister and the cabinet.”
This is disappointing as there’s no doubt some schemes could benefit from being consolidated
Richard Butcher, PTL
He said the bill will be presented on October 14, adding that “it remains the government’s desire to progress a new regulatory regime for superfunds”.
Mr Field said he was particularly concerned about the potential consolidation of DB pension schemes into superfunds without the necessary regulations put in place, and pressed the government to prevent consolidators from taking on any pension schemes until it is.
He also called on the government to ensure the Pensions Regulator has the resources required for this new regulatory function, particularly in light of its long-expressed concerns about “critical failings in the current regulatory regime”, and TPR’s use of its existing powers.
Commenting on the response, Mr Field said: “Why won’t the government act when it knows what can happen to life savings even when there is regulation?
“The Queen’s Speech must outline government action on this front, with full regulation of superfunds, if we are not to see more workers robbed of their due entitlement exactly as happened at BHS and British Steel.”
A DWP spokesperson added: “The department has announced it will deliver pensions dashboards, punish people who are reckless with their company pension schemes with up to seven years in jail, and create collective defined contribution schemes.
“We continue to work closely with regulators, other government departments and stakeholders to develop revolutionary reforms to transform the retirement-saving culture in this country.”
Of the two consolidators in existence, The Pension SuperFund and Clara Pensions, it has been reported that The Pension SuperFund has already entered into agreements with two as yet unnamed schemes, though neither has been consolidated into the fund yet.
Consolidators can transact under current legislation
Although pensions consolidators can transact, they do so with full transparency and with the approval of the regulator, according to Luke Webster, co-founder and chief executive of The Pension SuperFund.
He explained: “Indefinite delays place TPR in an invidious position whereby they are incentivised to only approve propositions meeting the most cautious end of the range of proposals set out in the original DWP consultation.”
He added: “Superfunds could remain in aspic for years, while pension schemes continue to fail and trustees are denied secure choices that might have led to higher benefits for their members.
“Frenzied lobbying from elements of the insurance establishment has regrettably taken the policy debate into the sidings of comparing the insurance and occupational pension investment regimes at the expense of grasping a ready-made opportunity to improve members’ outcomes.”
Adam Saron, chief executive of Clara Pensions, said: “We are confident that the regulator can properly oversee consolidation and the transactions that can legally and safely take place under the current rules.
“Clara strongly supports an authorisation regime that puts members first.”
Lack of clarity on capital adequacy
However, independent experts did not share the superfunds’ optimism. The new generation of DB consolidators will find it hard to win business until the regulatory regime is described, according to Richard Butcher, managing director at PTL.
He explained that without a regulatory regime, the superfunds cannot anticipate what level of capital they will need to maintain and, therefore, what level of premium they will need to ask for.
“This exposes early adopters to the risk the consolidator will need to come back and ask for more once the regime is finally described,” Mr Butcher said.
He added: “This is disappointing as there’s no doubt some schemes could benefit from being consolidated.”
Earlier in the year, Mr Dromey referred to the pensions bill as “quickie” legislation.
He said: “DB consolidation will not be included in the pensions bill at this stage, but this doesn’t mean that this has been kicked into the long grass.”
