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Pensions committee sets out DB recommendations

The Work and Pensions Committee has released a set of recommendations for the regulation and management of defined benefit (DB) pension schemes.

The report is the result of the committee's inquiry into the collapse of BHS.

The aim of the proposals is to "put incentive structures in place to make it more likely that DB pension schemes will be sustainable and that employers will honour their responsibilities."

So what exactly has the committee proposed?

A "nuclear deterrent"

Currently the anti-avoidance powers possessed by The Pensions Regulator (TPR) are retrospective and often involve length legal procedures.

The committee wants the government to grant TPR new powers to fine offenders that could treble the amount payable.

The report refers to this recommendation as a "nuclear deterrent to avoidance" because the intention would be that the punitive fines would not need to be imposed.

Empowering trustees and members

Trustees should have the right to demand timely information on the health and performance of their scheme, allowing them to effectively represent the interests of scheme members.

The report argues that currently scheme sponsors do not have to provide this information.

The committee recommends:

  • consolidating small schemes in an aggregator fund managed by the Pension Protection Fund (PPF) 
  • change the indexation of pension benefits when such changes would improve the sustainability of a scheme
  • give members more flexibility to take their pension as lump sums.

Earlier regulatory intervention

TPR should be able to intervene earlier to prevent potential problems escalating. The committee envisions this as a "rebalancing, rather than ramping-up" of regulation.

This could be achieved by:

  • having a more flexible timetable for valuations that reflects the risk of schemes 
  • reducing the statutory timescale for the submission of valuations an recovery plans to 9 months.

Updating the PPF levy

The current risk-based levy should be adjusted so that it:

  • helps incentivise good scheme governance 
  • ensure against an unfair disadvantage to certain types of employer (such as SMEs and mutual societies).

Streamlining the RAA process

A regulated appointment arrangement (RAA) is an emergency measure that negotiates an outcome for scheme members when a sponsoring employer is in trouble.

RAAs are rarely used, due to the length of the process. The report proposes that the process be streamlined and TPR take a more active role in negotiations.

The chair of the committee, Frank Field MP, said:

"The measures we set out in this report are intended to reduce the chance of another scheme going down the BHS route.

"To prevent another BHS we need to have the means to nip inevitable disasters like this one in the bud. We hope the government will consult on the package of measures we propose, which would go a long way, without resorting to any new reams of red tape, towards doing just that."

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