The Pensions Regulator (TPR) has asked defined benefit (DB) trustees to keep records of pension transfers activities, “including details of the advisers and the schemes to which transfers are made”.
In its annual funding statement, published today (5 April), the watchdog said that one of its major concerns “is ensuring that DB scheme members and their advisers have all the information they need to make an informed decision about the members’ best interests”.
TPR said that it is working closely with the Financial Conduct Authority (FCA) to achieve this.
The regulators published a consultation paper last month looking for industry views on their joint regulatory approach.
TPR said: “The combination of accurate and timely information from trustees to members and their advisers, and good advice from a regulated financial adviser, will help members to make informed decisions that suit their personal aims and circumstances.”
Trustees which have concerns over the level of transfer activity or the quality of the advice being given to members should contact one of the two regulators, TPR added.
The quality of financial advice is being discussed after a string of allegations of bad practice, most notably around members of the British Steel Pension Scheme.
It has been alleged the steelworkers were targeted by unscrupulous advisers and unregulated introducers as they sought to transfer out of their company's pension scheme before it was forced into the lifeboat Pension Protection Fund (PPF).
TPR is also concerned about the growing disparity between dividend growth and deficit reduction payments.
In the recent case of collapsed Carillion, its former board members cited cash flow problems as reasons for not making higher contributions to its pension funds in 2011 and 2013.
However, the company paid more than £70m in dividends both of those years, according to two government departments.
The DB pension schemes of Carillion, one of the UK government's biggest contractors, are all either in the retirement fund of last resort, the PPF, or will soon enter it.
Carillion has 13 final salary schemes in the UK with more than 28,500 members, and a deficit of £587m at the end of July, according to the company's results.
After unsuccessful talks with its lenders and the UK government, Carillion made an application on 15 January to the High Court for compulsory liquidation.
The regulator argued that “trustees should assess the impact of dividends on the employer’s covenant and whether the scheme is being treated fairly in light of what it needs to pay the promised benefits”.
According to Anthony Raymond, TPR’s interim executive director of regulatory policy, the regulator is being clearer in the annual funding statement about its expectations of how trustees should approach their scheme valuations.
He said: “Recent corporate failures have shown the risks of long recovery plans while payments to shareholders are excessive, relative to deficit-repair contributions.
“Trustees should negotiate robustly with the sponsoring employer to secure a fair deal for the pension scheme, while employers should balance the interests of pension savers with returns to shareholders and investors. We are working more closely than ever with trustees to support them in this process.
“However, if trustees fail to act we can intervene to protect members by using the full range of powers available to us now. We are also working with government to implement its white paper proposals.”
The Department for Work & Pensions (DWP) published last month its 76-page defined benefit white paper, which sets out a series of new measures for the regulator "to undertake a tougher and more proactive role".
Patrick Bloomfield, partner at Hymans Robertson, argued that “businesses with pension schemes will continue to be pushed to improve funding and reduce risk more quickly than before”.
He said: “The actions TPR calls for are targeted based on different business and scheme circumstances, but the message is consistent across the board: ‘get on with funding schemes whilst sponsoring businesses are still there to pay for them’.
“This continued pressure to increase contributions and seek contingency plans that cover remaining risks is designed to give businesses nowhere to hide if pension scheme funding doesn’t improve in the coming years.
“Given the pace at which pension schemes are maturing, it’s hard to argue against TPR’s direction of travel.”
According to Martin Bamford, chartered financial planner for Surrey-based Informed Choice, “the responsibility for making a DB pension transfer rests primarily with the investor and their adviser, but ceding and receiving schemes should take a degree of responsibility too”.
He said: “This request for record keeping and report should add an extra layer of protection for investors, allowing the regulator to identify market trends and intervene at an earlier stage should high volumes or questionable advice be taking place.
“The decision to transfer away from a defined benefit scheme should never be taken too quickly, so if this does slow things down, it’s not the end of the world.
“Better to make a good decision slowly than a poor one quickly!”
maria.espadinha@ft.com
