Some trustees at smaller pension schemes need to raise their game in areas like governance, David Fairs, the Pensions Regulator’s executive director of regulatory policy, has said.
Speaking at Pensions Expert’s DB and DC Pensions Management Summit on April 28, Fairs also said that he expected the watchdog’s information-gathering powers, which were enhanced by the Pensions Act 2021, to be its most regularly used new power.
The regulator is working with schemes in the lead up to publishing its second consultation on the new defined benefit funding code later this year, and also plans to issue a new single code consultation in the summer.
In some specific areas, there are some trustees that could improve areas of governance for the benefit of members
David Fairs, TPR
Smaller schemes need to demonstrate value for money
Pensions minister Guy Opperman has spoken often of the need for smaller pension schemes to prove their value for money.
In its annual funding statement published in April, the regulator acknowledged the high levels of uncertainty facing schemes, in areas including inflation, economic growth and the war in Ukraine.
Trustees have been forced to adapt their working practices during the coronavirus pandemic — something that Fairs was keen to praise them for.
“We have been through a very turbulent period. I think the way that administrators, the way that trustees have dealt with the challenges that have come along has been fantastic,” Fairs observed.
“On the whole, trustees do a phenomenal job in terms of looking after members’ interests. That’s not universally true, sadly. In some areas, particularly in smaller schemes, small DC schemes, we think there is an opportunity for trustees to raise standards of governance.”
Fairs pointed to the government’s requirement for schemes of under £100mn to demonstrate value for money or to think about putting their members into schemes that can provide good value.
“On the whole, I think the industry does a phenomenal job. In some specific areas there are some trustees that could improve areas of governance for the benefit of members,” he said.
TPR’s new powers are being taken seriously
The Pensions Act 2021 extended the watchdog’s powers, providing new grounds to issue contribution notices, creating new criminal and civil offences and broadening its investigatory powers.
Fairs predicted that the regulator’s enhanced information-gathering powers would be the weapon most commonly deployed out of its arsenal, with its other powers acting more as deterrents.
“The information-gathering powers are the ones that we can see using quite often and being effective in carrying out our duties,” he said.
“I think when you look at the criminal sanctions, they are there as a significant deterrent. They’re not powers that we expect to use frequently. We will use them if the circumstances arise, but they’re primarily there as a deterrent.”
Companies undergoing large changes that stand to affect their pension schemes appear to be acting with the regulator in mind, he said.
“Where there are restructurings or M&A activity… they’re taking those powers quite seriously, and actually the corporates that are involved in those transactions are looking very carefully at the impact of the pension schemes, they’re looking at alternatives.
“They’re looking at which alternatives are good for the pension schemes and perhaps which ones are less good.”
TPR is talking to covenant advisers
The regulator consulted with the pensions industry in 2020 over the principles that should underpin its new code of practice on DB scheme funding.
Fairs confirmed that a second consultation would take place around late summer or early autumn this year.
During the summer, between the publishing of draft regulations and the second consultation, the watchdog will engage with industry and seek feedback.
TPR funding statement flags uncertainty impact for valuations
High levels of uncertainty surrounding inflation, interest rates, mortality, energy prices and economic growth will put additional pressure on trustees completing their tranche 17 valuations this year, according to the Pensions Regulator’s annual funding statement.
“One of the first steps around that is looking at covenant, looking at our covenant guidance, and setting out how our thinking has developed over the time period since the first code consultation,” he said. TPR is talking to covenant advisers.
The regulator will also publish its response to its consultation on the single code of practice in summer, Fairs added.
The new code will replace 10 of its current codes of practice, which largely deal with the governance and administration of pension schemes.
