Defined Benefit  

Pensions regulator to target small DB schemes

Pensions regulator to target small DB schemes

The Pensions Regulator will target smaller defined benefit (DB) schemes because of concerns about poor governance.

According to research published today (10 September) by the watchdog, smaller schemes tended to perform worse than larger schemes on meeting the principles of the regulator's funding code, particularly around taking and managing risk.

As part of its new regulatory approach – in which it has pledged to be clearer, quicker and tougher – TPR is stepping up its proactive involvement with smaller schemes to assess their performance in key risk areas, including governance, covenant, investment and funding.

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The watchdog said it would provide clear feedback to the trustees of all small schemes, with those which do not take action facing further action.

One example of action taken by TPR involved an investigation to explore whether support for a DB scheme with 130 members, and a buy-out deficit of £33m, should be provided by the parent company.

"The intervention contributed towards much stronger support for the scheme being put in place by the parent company," the regulator said.

David Fairs, executive director of regulatory policy, analysis and advice at TPR, said schemes in all segments of the pensions landscape should expect greater scrutiny from the regulator.

He said: "In particular, we are taking a far more directional approach to small schemes to drive up standards and ensure all members are in well-run schemes.

"It is challenging to be a scheme trustee and we continue to help trustees, of all size schemes, meet the standards we expect and make a positive difference for their members.

"We are reviewing and streamlining our existing guidance to make sure our expectations are clear.

"This includes outlining how we will be quicker to take enforcement action where standards are not being met by using our existing powers more often, and any new powers that may be provided by government."

The Department for Work and Pensions (DWP) launched a consultation in June on new powers for the watchdog, which will include unlimited fines or a prison sentence for rogue bosses.

The new rules will allow the regulator to get involved more quickly and more often when companies make changes which could damage the pension scheme.

TPR has also already started working on a new DB funding code, as outlined earlier this year in the government’s DB pensions white paper.

The code will aim to introduce clearer funding standards to help trustees and employers to agree good funding outcomes for their schemes and which should, alongside any expansion of TPR’s powers, better equip it to take enforcement action, it said.

maria.espadinha@ft.com