The Pensions Regulator has responded to the government’s green paper on security and sustainability in defined benefit pensions urging it to be granted extra powers.
The regulator has requested changes to its scheme funding powers, information gathering powers and the introduction of a defined benefit chairman’s statement.
Despite the BHS debacle, the regulator does not demand a blanket requirement on parties to obtain clearance ahead of any planned corporate actions.
The Pensions Regulator's chief executive Lesley Titcomb said: “Our analysis of defined benefit schemes shows the vast majority of employers supporting them should be able to repair their deficits and meet their long-term financial obligations to their scheme members.”
The Pensions Regulator demands greater powers with regard to scheme funding, setting the standards it expects to be met in the form of detailed codes or guidance, supported by a legally enforceable “comply or explain” regime requiring trustees and sponsors to explain why they have not complied with its code and to demonstrate to us why they think their approach is prudent and appropriate.
The Pensions Regulator also wants “clarification of our funding powers, to encourage employers with significant resources to repair deficits more quickly when they can afford to do so.”
Ms Titcomb said: “We currently have no general power under section 72(1A) of the Pensions Act 2004 to compel parties to submit to an interview where we believe they have information that could assist our casework.
"We have found that, in the rare instances where individuals have voluntarily submitted to an interview, we were able to progress the case more quickly than would otherwise have been the case. For example, some of our recent avoidance cases were significantly assisted when key parties agreed to be interviewed on a voluntary basis early on.
"Without this co-operation, and in the absence of a power to require interview, our investigation would have been significantly delayed. A more comprehensive interview power across our regulatory remit would facilitate the more timely resolution of cases across a number of areas including avoidance cases and pension scams.
“An additional civil/administrative power to impose fixed and escalating civil penalties (akin to what we currently have in relation to our automatic enrolment work) requiring a lower burden of proof would enable us to take action more quickly and effectively. These specific powers, combined with other tools such as a defined benefit chair’s statement, would drive greater accountability and transparency.”
The green paper considers whether it would be more effective for us to have powers in some limited circumstances to intervene proactively to prevent certain corporate activities, rather than deploying our retrospective anti-avoidance powers.
Ms Titcomb said: “Our view remains that a blanket requirement on parties to obtain clearance ahead of any planned corporate actions would be disproportionate both for the UK economy and for The Pensions Regulator and our levy payers.
"We remain open to proposals that would seek to strengthen our clearance powers and allow us the opportunity to prevent activity that is not accompanied by measures to alleviate negative scheme impact before it happens. Requiring clearance in some defined circumstances could help to achieve this.
“The Financial Conduct Authority has a very helpful principle requiring firms to cooperate with them. A similar approach has been taken in the new master trust authorisation regime where The Pensions Regulator’s ongoing supervision of master trusts and the threat of de-authorisation mean it is in the interest of schemes and their advisers to cooperate with us, and to provide us with information to our satisfaction, in order to avoid engaging our formal powers.
"We would like to see this dynamic extended beyond the Master Trust regime such that we have a single set of regulatory tools at our disposal, to exercise when and where appropriate across all aspects of our casework, including the ability to request information regularly and on an ad hoc basis.”
stephanie.hawthorne@ft.com
