Defined Benefit  

Regulator’s new powers called into question

Regulator’s new powers called into question

Pension experts are doubtful The Pensions Regulator’s (TPR) new powers will be enough to stop cases the likes of BHS and Carillion.

In its response to the Department for Work and Pensions (DWP) consultation on the watchdog’s new rules to protect defined benefit (DB) schemes, which closed yesterday (21 August), consultancy firm Hymans Robertson said more detail on the new rules was needed to evaluate their effectiveness.

Under the new rules, company bosses who endanger their staff final salary pensions will face a fine of up to £1m, and a criminal sanction will also be introduced, alongside other new requirements for trustees and sponsoring employers.

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Alistair Russell-Smith, partner and head of corporate DB, and Susan McIlvogue, partner and head of trustee DB at Hymans Robertson, said the proposed changes represented a "significant and positive step" towards protecting DB pension schemes.

However, they were still doubtful "as to whether the package of proposals would have prevented high profile cases such as BHS and Carillion" and said they would like to hear the government’s views on this.

Mr Russell-Smith and Ms McIlvogue said they had high hopes for the regulator’s new code of practice, a consultation for which will be launched after the DWP's current piece of work.

"If the new code clearly sets out what is expected then it could do more to improve outcomes than the current consultation on powers," they said.

"A new, clearer code of practice should also make it easier to apply sanctions if trustees or sponsors do not comply."

BHS went into administration in April 2016, putting workers' retirement nest eggs at risk, and TPR has been investigating the case since.

In the end, a £363m settlement with Sir Philip was reached to fund a new independent pension scheme for 19,000 former BHS workers.

Carillion had 13 final defined benefit (DB) schemes in the UK with more than 28,500 members, and an aggregate deficit for PPF purposes of about £800m.

It is expected that 11 of these plans will ultimately end up in the pensions lifeboat fund, with the vast majority of these already in assessment at the Pension Protection Fund (PPF).

After unsuccessful talks with its lenders and the UK government, Carillion made an application on 15 January to the High Court for compulsory liquidation.

There are also some doubts regarding the new criminal sanctions, which will be introduced to punish those found to have committed wilful or grossly reckless behaviour in relation to a pension scheme.

In its response to the DWP consultation, the Pensions Management Institute (PMI) said while it was "sympathetic in principle" to the idea, it was not "persuaded that such a law could easily be enforced".

The industry body said: "In some such circumstances, any discussion of appropriate penalties seems essentially academic."

Another recommendation from industry experts is for the government to speed up processes at the watchdog.