The Pensions Regulator and the Pension Protection Fund should be combined into one streamlined entity and be open to restructuring deals involving pensions where insolvency is not imminent within 12 months, according to restructuring professionals.
Respondents to law firm Taylor Wessing’s 2017 survey on pensions in restructuring, released on Wednesday, also said they believed both bodies prioritised the immediacy of insolvency above all other factors in formulating their stance.
The role of the regulator and its suite of powers have been in the spotlight since the emergence of several high profile insolvencies in 2016. In the run-up to June’s general election, prime minister Theresa May pledged to beef up the watchdog with powers to block mergers and acquisitions involving pensions.
While it might help corporate transactions and restructurings affecting defined benefit, in terms of the broader landscape it may not be that efficient or effective
Alex Hutton-Mills, Lincoln Pensions
Seventy-three per cent of respondents, including actuaries, professional trustees and insolvency practitioners, rejected the idea of mandatory clearance, according to the report.
Practitioners want one regulatory body
But the same proportion were in favour of merging the regulator and the PPF, which would create a new body similar to the US Pension Benefit Guaranty Corporation.
“There’s a view that it’s a waste of time and resource to deal with two separate organisations that are trying to achieve inherently the same thing,” said Mark Smith, a pensions partner at Taylor Wessing.
The survey results evidence a perception that both regulator and lifeboat have the same priorities when agreeing to a restructuring involving pensions.
The immediacy of insolvency was identified as a top priority for the regulator by 67 per cent of insolvency professionals, while 89 per cent said it drove the PPF’s decision process.
If the aligned interests of the Croydon and Brighton organisations suggest an office move and merger, the practical case for doing so looks less convincing.
The Department for Work and Pensions consulted extensively with the PBGC before drafting the Pensions Act 2004, and decided it was better to establish two separate entities.
“While it might help corporate transactions and restructurings affecting defined benefit, in terms of the broader landscape it may not be that efficient or effective,” said Alex Hutton-Mills, managing director at covenant advisory practice Lincoln Pensions.
Where the PPF’s primary focus is the proper management of its fund, the regulator has a wide variety of other functions including defined contribution regulation, he noted.
Alternatives to a PPF merger
The restructuring professionals contacted by Taylor Wessing were also in favour of streamlining the regulatory process in more specific ways.
Fifty-six per cent of respondents agreed both that the regulator’s powers are fine as they are, but that it needed to change its procedures for using them.
Most favoured bypassing the involvement of the determinations panel in restructuring processes, preferring a decision to be made by the regulator directly.
A subsequent reference could then be made to the Upper Tribunal, the court of appeal for certain regulatory functions.
“There’s a lot of time spent going through the gears to get to the Upper Tribunal before you can actually take some decisions,” said Hutton-Mills, who recommended that the internal infrastructure of the regulator be revisited, with a focus on improving efficiency.
Hutton-Mills said there was some scope for increasing the regulator’s powers over corporate transactions, but that the resource shortfall may need to be made up by private practitioners, as is done with the takeover panel.
More calls for weaker insolvency requirement
Respondents also wanted to see a relaxation of the insolvency requirements for restructures affecting schemes. Currently a sponsor’s insolvency must be inevitable within 12 months for talks with the regulator and PPF over a regulated apportionment arrangement to begin.
The 12-month period has been criticised for not allowing companies enough time to agree a deal with the two bodies, and for contributing to PPF drift.
The overriding influence that DB scheme health has on UK sponsors’ prospects will only see corporates push harder to follow Tata Steel’s example, according to Penny Cogher, pensions partner at law firm Irwin Mitchell.
TPR greenlights British Steel RAA
The Pensions Regulator has granted initial approval for the restructuring of the British Steel Pension Scheme, which will see members offered revised benefits at a level above those provided by the Pension Protection Fund.
“They’ve had this huge lift in their share price because of the restructuring of their pension arrangements,” she said. “I do then get clients ringing me up saying… why can’t we be doing this?”
More and more companies are looking to do deals with the two bodies over their pension schemes, according to 58 per cent of the survey respondents.
But Cogher said that other measures, such as an override for schemes currently tied to the retail price index, should also be considered.
“Why should there be one rule for the public sector and one for the private sector?”
