The Work and Pensions Committee, chaired by MP Frank Field, has released the terms of reference for a major new inquiry into the defined benefit pension sector.
Announced in May, the inquiry will look at all aspects of the the regulation of DB schemes.
This includes the The Pensions Regulator’s anti-avoidance powers, the sustainability of the Pension Protection Fund, and the relationship between the regulator, the PPF, trustees and sponsoring employers.
Most controversially, the inquiry will look at maintaining the “balance between meeting pension obligations and ensuring the ongoing viability of sponsoring employers”, which Mr Field previously hinted could involve reducing member benefits.
The new inquiry follows a major probe into the collapse of BHS and its associated pension scheme, which included a grilling by MPs of the retail chain’s former owner, Sir Philip Green.
It also comes as the government considers reducing the benefits paid to members of the British Steel Pension Scheme in order to make the scheme’s sponsoring employer, Tata Steel, more attractive to potential buyers.
Announcing the terms of reference on Monday (8 August), Mr Field said: “The lessons of BHS must be learnt. This may mean strengthening the powers and resolve of the Pensions Regulator to act early, quickly and firmly with those who seek to avoid their pension responsibilities.
“It is important, however, that businesses that are run reputably and responsibly are not put under undue restriction. Ultimately, defined benefit schemes must be placed on a sustainable footing.”
On the sustainability of DB schemes, the terms of reference asked for evidence on three points.
These are TPR’s objective to “to minimise any adverse impact on the sustainable growth of an employer”; whether the current framework was generating intergenerationally fair outcomes; and whether the wider investment environment, including record low interest rates, warranted an “exceptional approach”.
The document did not detail what such an “exceptional approach” might be, but in May Mr Field told FTAdviser: “Over the short-term it may be impossible to deliver everything members have expected. So how do we go about giving people a good boost, but one that may not be all that they wanted?”
The deadline for submissions is Friday 23 September.
Floyd Fombo, a chartered financial planner with Rathmore Financial, said even a modest reduction in benefits, such as linking annual increases to the consumer price index instead of the usually higher retail price index, would make a “significant difference” over the years.
However, he said many pensioners would not be “any the wiser” because they do not know what they stand to receive in retirement.
Mr Flombo said there was “more at play” than simply negligence on the part sponsoring employers, and that unusual economic conditions were largely to blame for the ever-expanding deficits.
“I don’t think they [employers] could have anticipated that interest rates would have been as low as they have been for as long as they have been. We’re in uncharted waters.”
james.fernyhough@ft.com
