The Work and Pensions Committee has launched an inquiry into the regulation of defined benefit (DB) pension schemes which could see The Pensions Regulator (TPR) handed extra powers.
The probe will consider the scope of TPR powers, the sustainability of the Pension Protection Fund (PPF), and the role and powers of trustees.
It will also consider whether an “exceptional approach” to regulation is needed in an environment of historically low interest rates, especially after the Bank of England reduced the base rate to 0.25% last week.
The Pensions and Lifetime Savings Association has called for TPR to take a “proportionate and flexible” approach to scheme funding after the rate cut, concerned of its impact on upcoming triennial valuations.
The inquiry comes after its report of its inquiry into the British Home Stores (BHS) pension schemes, which exonerated the regulator of any failures.
Chairman Frank Field said the inquiry was hoping to find a good level of regulation which did not affect schemes’ sustainability.
He said: “The lessons of BHS must be learnt. This may mean strengthening the powers and resolve of TPR to act early, quickly and firmly with those who seek to avoid their pension responsibilities.
“It is important, however, that businesses that are run reputably and responsibly are not put under undue restriction. Ultimately, DB schemes must be placed on a sustainable footing.”
The inquiry will accept evidence until 23 September, and is also inviting the industry to recommend potential improvements.
Aegon head of pensions Kate Smith welcomed the inquiry and called for TPR to be given greater powers.
She said: “The inquiry is timely given the spotlight on growing pension black holes and the BHS debacle. It needs to be made absolutely clear that unscrupulous employers cannot simply offload their pension liabilities and walk away.
“TPR needs to be given stronger powers designed for today’s challenges, to block corporate deals which are unfairly detrimental to members of DB schemes. Employers should be forced to get clearance from TPR for any deals with implications for DB scheme security whether there is a pension deficit or not.
“We also need a considered rethink on how to respond to pension scheme deficits where it is beyond doubt that employers could ever afford to close them.
“If there was ever any doubt, in the private sector, the golden age of DB pension schemes is well and truly over.”
What the inquiry is looking at
DB regulation, including:
- The adequacy and application of regulatory powers
- The level and prioritisation of resources
- A greater emphasis on supervision and pro-active regulation
- Additional measures for private companies or companies with complex and multi-national group structures
- The pre-clearance system
- Powers relating to scheme recovery plans
- The impact of the TPR’s regulatory approach on commercial decision-making and the operation of employers.
The sustainability of the PPF, the fairness of the levy system and its impact on businesses and scheme members.
The role and powers of pension scheme trustees.
Relationships between TPR, the PPF, trustees and sponsoring employers.
The balance between meeting pension obligations and ensuring the ongoing viability of sponsoring employers, including:
- TPR’s objective to “to minimise any adverse impact on the sustainable growth of an employer”
- The current framework’s impact on intergenerational fairness
- Whether the current wider environment, including very low interest rates, warrants an exceptional approach.
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