Defined BenefitMay 25 2017

Regulator condemned as 'arrogant and capricious'

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Regulator condemned as 'arrogant and capricious'

Deficiencies in regulation and supervision of occupational pensions have led to the call for the creation of a Royal Commission to investigate the role of The Pensions Regulator.

The criticisms were contained in The Long Finance paper sponsored by the University of Leeds and the European Federation of Financial Analysts Societies and written by Iain Clacher, Con Keating, and Andrew Slater, in a response to a Department for Work and Pensions consultation.

The report said: "There is no structural problem with the regulation per se; however, the application of the regulation and behaviour resulting from the current regimes of accounting, valuation and solvency has led to structural problems. Moreover, the move towards a goal of self-sufficiency has resulted in bad outcomes and decision-making.

"The idea of increasing the powers of The Pensions Regulator to ensure member protection is worrying. Simply put, if we look at the decline of defined benefit pensions and some recent high profile cases in 2016, the regulator has done nothing of substance to ensure member protection.

"There is, as it stands, a system of limited approval for certain types of corporate transactions.

"However, it not clear that the current system has done anything of note here given recent scandals such as BHS, so giving more powers to The Pensions Regulator to enable it to protect member benefits is without foundation.

"As it stands, the overarching goal of The Pensions Regulator is to protect the Pension Protection Fund and this is not compatible with protecting member benefits."

Prime Minister Theresa May has announced plans to protect the pensions of workers against irresponsible behaviour by company bosses, should the Conservative party win at the general election.

A Conservative government would give The Pensions Regulator the power to scrutinise takeovers and unsustainable dividend payments that threaten the solvency of a company pension scheme.

But the Long Finance paper stated: "Neither the employer covenant nor integrated risk management receive as much as a passing mention in any of the volumes of pension legislation. They are inventions of The Pensions Regulator and lack the force of statute law, but as a trustee, God help you if you stray from the regulator’s narrative, because there is little or no recourse available through the courts.

"We have seen instances where the behaviour of the regulator has been arrogant, capricious and abusive; instances where their actions have been totally disproportionate, such as the issuance of section 72 (PA 2004) notices, so much so that the costs of compliance have been materially deleterious to the security of member benefits, a clear breach of the regulator’s prime statutory objective to protect members’ benefits.

"Since its inception, the responsibilities and powers of the Regulator have grown seemingly unceasingly. The Regulator has proved remarkably adept at capturing the ire and indignation of politicians to its gain. Its track record in discharging these responsibilities has been far from illustrious; its accountability almost non-existent.

The authors would also remove the Pensions Regulator’s statutory duty of reducing the risk of pension schemes ending up in the Pension Protection Fund which it would privatise.

But Francis Fernandes, senior advisor to Lincoln Pensions, said: "It's pretty clear The Pensions Regulator needs more resource - both access to more expertise to deal with more difficult cases cropping up same time and also increased headcount to monitor the hundreds of smaller stressed schemes."

When approached for comment, a spokesman for The Pensions Regulator, said: "The Department for Work & Pensions will make a formal response to the consultation in due course but we are not going to comment on individual consultation responses."