Talking head: The NAPF's Helen Forrest runs through the most important regulatory changes facing defined benefit pension scheme decision-makers – including unintended consequences of the Budget's retirement reforms.
This is not only restricted to UK regulations. The UK has around 60 per cent of the EU’s DB pension liabilities. This, together with its unusually large number of individual pension schemes, means the UK is disproportionately affected by EU pensions and investment regulation.
An eye on the regulator
In February, the NAPF responded to the Pensions Regulator’s consultation on its intention to revise the regulation of DB schemes.
Growth can mean different things to different types of sponsoring employer
The regulator set out how it proposes to balance its new objective – to "minimise any adverse impact on an employer’s sustainable growth" – with its existing regulatory objectives.
The new objective, it is hoped, will enable employers and trustees to work together more flexibly to establish viable, long-term funding plans for DB schemes.
Its success will depend on consistent treatment by regulator caseworkers of their discussions with trustees and sponsors – a major issue for NAPF members.
We will be working with the Department for Work and Pensions and HM Treasury to monitor the extent to which the regulator is adhering to its new objective.
It is also important that the watchdog delivers on its aim to ensure scheme risk is managed rather than eliminated, and ensures this intention is clearly understood by all stakeholders through clear and concise communications.
Another survey of NAPF members last year found that 47 per cent of schemes felt under pressure from the regulator to take a more cautious approach to their scheme funding valuation than they otherwise would, which is concerning.
We urged the organisation to apply a broad interpretation of growth that takes into account scheme specific circumstances. Growth can mean different things to different types of sponsoring employer.
The regulator must work closely with trustees across all schemes to understand what employer growth means to them.
The Budget
With the dust not yet settled on the Budget’s radical pensions reforms, our attention turns to the possible ramifications for DB schemes. Government is consulting on whether to allow individuals to switch from DB to defined contribution pension provision, to take advantage of the new flexibility.
This has the potential to place extra pressure on DB pensions. If transfers were permitted greater numbers of members might leave, creating funding and investment issues for schemes as their liabilities change.
There is clearly much work needed to properly understand how the pensions changes will affect our members, but we look forward to working closely with the government to find the answers ahead of April 2015.
Helen Forrest is head of policy and advocacy at the National Association of Pension Funds
