Key Dates

Response dated 17 May 2017 but not published until 16 June 2017 (postponed until after the General Election on 8 June).

Summary

The Pensions Regulator has published its response to the Green Paper, "Security and Sustainability in Defined Benefit Pension Schemes", issued in February 2017.  Key points to note include the following.

Scheme funding

• The Regulator is concerned that the absence of clear definitions of "prudence" or "appropriateness" has led to diverging approaches between schemes.  It considers that greater clarity over what is expected would be beneficial and suggests this could most readily be achieved with standards set out by the Regulator in codes or guidance, supported by a legally enforceable "comply or explain" regime.
• The Regulator agrees that there may well be a case for treating schemes whose sponsors can readily afford contributions differently from those where there is significant underfunding plus an employer with a weak covenant.  It considers there is a case for measures to encourage employers with significant resources to repair deficits more quickly when they can afford to do so.
• In relation to stressed schemes with weak employers, the Regulator agrees that options for change should be considered, but that careful controls would be needed to ensure that a scheme in these circumstances was treated fairly.
• Concerning pension increases, the Regulator accepts that there may be a case for suspension of indexation in specific situations where an employer is stressed and the scheme is underfunded.  However, it does not believe that a move to reduce member pensions across the board could be justified on grounds of affordability, or of rationalisation or simplification of benefit structures.

Regulator's power to wind up schemes

• The Regulator considers it would be helpful to revisit its statutory power to wind up schemes to allow it to take account of all its objectives in relation to DB schemes when deciding whether to exercise the power.  At present, the Regulator can only direct a scheme wind up if certain conditions are met, including that it is satisfied the wind up is necessary to protect the interests of the generality of members of the scheme.

Regulator powers to enhance member protection

• The Regulator notes that the Financial Conduct Authority (FCA) has a principle requiring regulated firms to cooperate with it and that a similar approach has been taken with the Regulator's future supervision of master trusts.  It would like to see the principle of cooperation extended across all aspects of its casework, to enable it to request information regularly and on an ad hoc basis.
• In particular, the Regulator would like its powers extended to enable it to compel parties to be interviewed and so that it could use its inspection powers under section 73 Pensions Act 2004 more quickly.  It would also like the power to impose civil or administrative penalties for non-compliance with an information request under section 72, rather than being limited to pursuing a criminal conviction.

Clearance and corporate transactions

• The Regulator considers that a universal requirement to obtain clearance before a corporate transaction would be disproportionate but remains open to proposals which would strengthen its clearance powers in other ways.

Governance

• The Regulator will be launching a targeted communication campaign focusing on governance and is working with the pension industry to develop fitness and propriety protocols.

Date Accessed: 03/12/2021