Both the Pensions Regulator and the Pension Protection Fund have called for more wide-ranging, interventionist regulation of defined benefit schemes, evidence published by the Work and Pensions Committee has this week shown.
The committee published the evidence received as part of its pension regulation inquiry. Both the regulator and lifeboat fund endorse an approach that involves greater scrutiny and interventionism.
Whatever measures are introduced, it is essential that the regulator is given sufficient resources to enable it to regulate efficiently and proactively where necessary
Hugh Gittins, Eversheds
In a release, the regulator summarised the points from its evidence, saying it requires:
enhanced investigatory powers;
improved flexibility over valuation periods, for example requiring more regular valuations for higher-risk schemes;
the power to specify appropriate levels of funding and contributions;
the ability to approve clearance where corporate activity may pose a material risk to a scheme;
further evolution of its approach to focus more intensely on riskier schemes.
A spokesperson for the regulator said: “Our submission to the Work and Pensions Select Committee sets out a number of ways where we feel the regulatory framework could be strengthened in areas such as clearance on corporate actions and information gathering. We look forward to giving evidence to the inquiry to elaborate on these proposals in more detail in the coming weeks.”
In a similar vein, the PPF highlights three main areas.
Scheme funding: The fund espouses a move to curtail the gradual extension of recovery plans that has been seen in recent years, saying “schemes with strong employers should be required to target shorter recovery plans as opposed to being allowed longer recovery plans or to take greater risks as is the case under the present system”.
Scrutiny of distressed schemes: It proposes a period of intensive scrutiny for schemes with poor funding and weak employers, including appointing an independent trustee, considering restructuring or even winding-up the scheme. It also suggests the regulator is given the power to require that a scheme wind-up at the request of trustees or the PPF itself.
Corporate oversight: The PPF suggests improving oversight of corporate transactions and introducing anti-avoidance action, such as imposing duties on employers and trustees to engage with the regulator on transactions.
A spokesperson for the PPF said: “We want to ensure that the PPF continues to operate in the most effective way and to protect all DB members now and in the future.”
Must do better
Hugh Gittins, pensions partner at law firm Eversheds, said the evidence showed a belief that more can be done to improve DB sustainability.
He said: “It is notable that the select committee has drawn particular attention to the submission from the PPF, which calls for a more interventionist approach to scheme funding and greater powers for the regulator.”
“Whatever measures are introduced, it is essential that the regulator is given sufficient resources to enable it to regulate efficiently and proactively where necessary.”
Charles Cowling, director at consultancy JLT Employee Benefits, said politicians face a thorny issue, whether they choose to act on the regulator and PPF’s suggestions or not.
Select committee inquiry: What should change to safeguard DB?
As the deadline for submitting views on defined benefit to the Work and Pensions Committee has passed, experts say there is a need for greater flexibility, potential benefit reductions and increased powers for the Pensions Regulator.
“There’s a political issue here about whether politicians really want benefit promises to be promises,” he said.
“Are they going to make employers stand behind [their promises] as though they’re guarantees, or are they going to allow them, in limited circumstances, to be released from promises they can’t afford any more?”
“There’s no easy option for politicians here; they either have to take benefits from members or turn the screw on employers.”
