Published by Jane Ralph on
Estimated reading time: 4 minutes
The DWP White Paper: ‘Protecting Defined benefit Pension Schemes’ acknowledges that the vast majority of UK employers run their businesses and pension schemes responsibility with high levels of governance. However it notes there are examples of sponsoring employers misusing the flexibility in the existing system and sometimes benefitting at the expense of pension scheme members (and more responsible employers). It made proposals in three areas:
The three forums were reassured by comments in the White Paper such as:
Although, of course, you would expect those taking the time to voluntarily engage with and debate the issues to be drawn from the good guys toeing the line!
There was also interest in the proposed consolidation route although views on its development varied. Attendees in London were more receptive to the concept and could envisage ways in which it might work whilst discussions further north were perhaps a little more sceptical regarding the practicalities. All agreed clarity would be needed with regard to PPF access for members and the extent of any ongoing obligations for employers.
The general view from attendees was the new powers would have little impact on the behaviour of the vast majority of ‘well-behaved’ trustees and sponsors.
While the White Paper comes across forcefully in terms of punitive fines and criminal offences the general view from attendees in all locations was the new powers would have little impact on the behaviour of the vast majority of ‘well-behaved’ trustees and sponsors. They noted that in the early days the threat of TPR’s powers was relatively effective however, it was the lack of application more recently that had lessened this impact. Anecdotally the groups all noted the types of behaviour giving rise to the most severe punishments was not something the groups (or their respective trustee bodies) expected to exhibit!
Our view is that the impact on the vast majority of employers will not be significant but the changes will be felt. For valuations this might take the form of greater challenge either earlier in the process for those sampled by the Regulator or following the normal conclusion when scheme returns and, in due course, the Chairs statement are reviewed.
The move to “define” prudence and appropriate (as applied to recovery plans) will also subtly change the landscape – previously the Regulator had to prove the selected assumptions were flawed whilst under the proposals the trustees will need to justify any deviation from these “definitions”.
As you might expect there were mixed views on clarity around scheme funding definitions. While clear guidance was on the face of it appealing there was some concerns that we have been here before (anyone remember the MFR) and, even more so today, one size does not fit all.
Despite the statistics in the room not adding up to the “68% of employers have a journey plan” quote from the White Paper all were in broad agreement that a long term objective which is considered when setting the statutory funding objective was a good thing. Here again the three roundtables had common views; a long term objective should be revisited overtime as progress towards the end point is made – either accelerating or stepping back from finally discharging all pension obligations via buy-out depending on scheme experience and market pricing.
Importance of sponsor involvement with strategic investment considerations was emphasised as part of an integrated risk management approach. This generally works well through a collaborative approach although investment strategy, as the key driver, being legally the sole responsibility of the trustee did give rise to some frustration.
There is a long way to go before aspects of the White Paper requiring legislative change will be enacted however all the employers who engaged at our roundtables felt the direction of travel was positive and appeared not to add to the, for some, already heavy pension burden.
The roundtable format with open discussion was appreciated by the attendees and they, like us, are looking forward to our next roundtable later in the year.