Defined BenefitMar 12 2018

Industry pushes for more regulatory power to tackle pensions

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Industry pushes for more regulatory power to tackle pensions

The pensions industry wants the government to do more than simply increase The Pensions Regulator's (TPR) powers to clamp down on distressed pension schemes.

Risk and retirement solutions firm Aon said almost 70 per cent of the audience at its latest pensions conferences thought giving the The Pensions Regulator more powers may help distressed pension schemes, but that other changes are also required.

The Department for Work & Pensions (DWP) will release a White Paper on defined benefit pensions in the Spring that is expected to tackle issues such as how to help pension schemes with distressed employers. 

The DWP has been working for several months on this document, which was first expected to be published in 2017, and then pushed back to February 2018.

Measures proposed could include a new criminal offence of wilfully failing to fund a pension scheme properly and a general drive to allow the regulator to be more proactive in its work on companies running defined benefit schemes.

But the majority of the 400 pensions managers, trustees and company pensions representatives Aon polled at its conferences thought such measures alone will not be enough to sort the problem.

Lynda Whitney, partner at Aon, said: "I would speculate that the White Paper will propose that The Pensions Regulator receives new powers which would allow them to demand more information and to more easily commence winding-up of distressed schemes. 

“But it was interesting to hear that over 70 per cent of Aon's conference audience did not think this would be enough."

Aon proposed a number of additional measures, including giving company directors a responsibility to consider the up-to-date funding of the scheme when deciding on dividends, and making benefit compromises easier to achieve if trustees decide that it is in members' best interests, and subject to the regulator's consent. 

Matthew Arends, partner at Aon, said: "(Prime minister) Theresa May is seeking tough new rules for company bosses. I believe they do need to think more about their pension schemes but draconian measures could damage the very companies that the schemes are relying on for support. 

"Giving directors the duty to consider the pension scheme deficit before deciding on a dividend payment strikes a balance."

Aon also believes trustees should be allowed to move existing benefits from retail price index (RPI) indexation to the consumer price index (CPI).

In 2010 the government dropped RPI as an official inflation measure for pensions, switching instead to CPI.

Defined benefit schemes can change to the CPI, as long as their own rules don't specifically mention RPI. This was the case with BT, which saw the High Court recently deny its request to change the inflation measure.

However, defined benefit schemes members' benefits would decrease by £80bn to £90bn if their pension schemes were allowed to switch from the outdated RPI, according to data from the DWP.

Ms Whitney said: "RPI has been discredited statistically and even the governor of the Bank of England is now questioning how it could be phased out. 

"It is historical luck whether a scheme's rules were drafted in a way that allows a move to CPI - and luck is not the basis of good policy.

"You could argue whether CPI or CPIH (including housing) should be used, but for pensioners' expenditure, excluding housing cost is a reasonable approach."

carmen.reichman@ft.com