From the blog: The government has floated well-intentioned reforms intended to strengthen the arm of regulators against dodgy bosses, but the proposed changes risk undermining trustees and making further scheme closures more likely.
The consultation on strengthening the Pensions Regulator closed on Tuesday. It comes after a succession of corporate scandals, notably the collapse of BHS, and resulting cuts to pension benefits.
One challenge is that this is not just a pensions problem. The underlying instability is caused by a corporate system that allows equity owners to act with little regard to other stakeholders, including workers and pension scheme members.
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The consultation on strengthening the Pensions Regulator closed on Tuesday. It comes after a succession of corporate scandals, notably the collapse of BHS, and resulting cuts to pension benefits.
One challenge is that this is not just a pensions problem. The underlying instability is caused by a corporate system that allows equity owners to act with little regard to other stakeholders, including workers and pension scheme members.
These changes could accelerate the closure of DB schemes without providing significant additional safeguards to workers
Another is that delivering pensions security means ensuring that high quality defined benefit schemes remain open to current and future workers, as well as safeguarding accrued benefits.
DB bosses must be kept in check
Nevertheless, there is a case for giving the regulator – which has been castigated for its response to these scandals – more power to act when there are signs of wrongdoing or incompetence.
Trade unions strongly favour a crackdown on wealthy parent companies that seek to dump their UK pension schemes, for example.
However, the proposed new regime risks neglecting one of the great strengths of the UK system – the role of trustees – and relying too much on a strengthened but overstretched regulator to protect members.
For instance, there are proposals to require employers to provide more information more quickly to the regulator regarding corporate activity that could affect their pension scheme.
Trust the trustees
It would be better to give greater information-gathering powers to trustees and allow both sides to thrash out a solution, with the trustees alerting the regulator if they are concerned.
Relying on the regulator to lay down a solution puts a lot of pressure on a watchdog with limited resources. Some schemes, probably smaller ones, could fall through the cracks.
And punitive measures ostensibly aimed at errant bosses could be used to allow the regulator a far greater say in the day-to-day running of schemes.
For example, there is the prospect of the Brighton-based organisation supporting its, as yet unpublished, DB funding code with fines for non-compliance and new interview and inspection powers.
DB closure is only outcome
We can expect trustees and employers to become even more risk averse as a result, pushing up the cost of providing DB.
This extension of the regulator’s powers could also undermine the established relationship between trustees and sponsoring employers in negotiating scheme funding.
A key test for any DB regime is, 'Would an employer start a new scheme, or re-open an old one to new entrants, under these rules?'.
We fear that, overall, these changes could accelerate the closure of DB schemes without providing significant additional safeguards to workers. Effective regulation of DB should not entail regulating DB out of existence.
Tim Sharp is policy officer in the economic and social affairs department at the Trades Union Congress
