The Work and Pensions Committee thinks that there may be a case for stronger regulation.
“The future of occupational pension schemes is perhaps the greatest challenge facing longstanding British businesses.” So began the final paragraph of the Work and Pensions Committee’s report on its inquiry into BHS. After the Bank of England cut interest rates and announced further quantitative easing, Hymans Robertson estimated that the total defined benefit deficit had risen to £945 billion (far larger than the UK’s gross domestic product of £1.8 billion).
The Work and Pensions Committee thinks that there may be a case for stronger and more proactive regulation. What form that regulation should take and how a balance is found to minimise any adverse impact on the operation of employer is part of its ongoing inquiry.
The outcome might result in the Pensions Regulator being made to operate in a more supervisory than regulatory way with regard to defined benefit schemes. This may include things like approving and setting limits to recovery plans for certain schemes. Shortening the 15 months that schemes have to complete valuations has also been suggested.
Currently employers must make trustees aware, within one month of occurrence, of any event relating to the employer that could be reasonably considered to be of material significance to the trustees or their professional advisers in the exercise of their functions. Employers can also use a voluntary clearance procedure to get confirmation from the Pensions Regulator that it will not use its powers in relation to an event to require a payment of up to the full amount of the deficit to be made into the scheme and/or financial support to be given by another entity to the scheme.
The Pensions Regulator has asked for a more flexible information gathering power, along with a general duty on parties to cooperate with it to be considered. It has stopped short of calling for mandatory clearance for corporate transactions in favour of asking for triggers requiring it to be involved in certain circumstances or for there to be a strengthening of the duty for employer to co-operate with and provide information to trustees. Some or all of these ideas may be taken forward.
The inquiry, details of which can be found here, is open for written submissions until 23 September. For more information about defined benefit pensions, please contact Christopher Nuttall on 01604 463134 or click here to email Christopher.