In yesterday’s blog I berated insurers and consultants for promoting a culture of de-risking to the great dis-service of ordinary members of defined benefit schemes. Understandably , I have got some stick for this from insurers (and the odd pension manager!)
Quite amazing hypocrisy to accuse others of benefiting without taking responsibility for the consequences when you and your employer are doing exactly the same with CDC
— Sam Pickford (@pickfos) May 26, 2018
I stand up for open collective schemes, whatever the type and will continue to champion their cause.
Although I’m “disappointed” (as in bloody furious) that people continue to bring products and win awards for de-risking, I am encouraged as in “quite delighted”, that the Pensions Regulator is finally getting its act together and putting its foot down.
Here is a case study in its most recent compliance and enforcement bulletin. I am seeing tPR on Tuesday and will point out to them then, that if they’d taken the same stance with TATA, the shambols of Port Talbot would not have happened. This is not a criticism of BSPS trustees but a (retrospective) judgement on its dealings with Tata where I (now) feel it was shamefully misled.
This is taken directly from the bulletin
This company was the sponsoring employer of a DB scheme with 130 members, an estimated deficit of £3 million on an ongoing funding basis, and part of a global group. When the employer had a key license suspended, a decision was made to cease the majority of its operations, and some of its staff were redeployed to work on projects in other companies within the group.
During the negotiation of the pension scheme’s valuation, the parent company told the trustees that they were considering applying for a regulated apportionment arrangement (RAA). We reviewed their proposal but concluded that they didn’t meet thecriteria for an RAA – we weren’t satisfied that insolvency was inevitable or that the scheme was being treated fairly compared with other creditors,and considered that a better result might be achieved by using our antiavoidancepowers
In the meantime, we were concerned that the valuation they submitted didn’t represent an achievable funding plan and that it posed a risk to members’ benefits and the PPF.
We told the trustees and employer why we were concerned and opened an anti-avoidance investigation to explore whether financial support should be provided by the wider group. This involved issuing a section72 (s72) notice to the parent company, which required them to give us detailed information to help our enquiry.
At the same time, the trustees also approached the parent company for more financial support, as part of the scheme’s 2016 valuation negotiation. The parent company confirmed that it was willing to engage with the trustees to find a solution to address the deficit in the scheme, and so we postponed the deadline for the s72 notice to give them time to negotiate.
Shortly after this, the parent company notified us of a proposed agreement with the trustees to provide support for the scheme – a £3 million cash lump sum payment (which represented the full deficit figure on an ongoing funding basis) and a guarantee for the full buy-out deficit (estimated at £33 million).
We concluded that this agreement has substantially improved the current funding position and the covenant support to the scheme and, as a result, increased the likelihood of members’ benefits being met in full.
Message to employers
If you engage with us and the trustees of your scheme at an early stage to find a solution, we can achieve a good outcome without the need for us to use our formal powers.
In the Pensions Regulator we trust.
It is in the commercial interests of insurers such as Just to “de-risk” defined benefit schemes by providing tools for IFAs to transfer out benefits. But it is generally in the interests of the ordinary member to stay in a well funded pension scheme.
The Pensions Regulator is the arbiter of whether a scheme is being properly funded and I think it deserves our support. I am very pleased to see , Steve Webb coming to the defence of the Pensions Regulator in the pensions press.
In answering Steve’s question “Does the Pensions Regulator deserve the criticism it is getting”, both Steve and I can answer “no”. We agree that the personal attacks on Lesley Titcomb emanating primarily from the Work and Pension Select Committee are unfair. More broadly we can agree that the Pensions Regulator is beginning to use its powers in a more constructive way than when the damage was being done at Carillion and elsewhere.
Standing up for occupational schemes which intend to pay pensions is what we should be doing. Where responsible insurers take that obligation from schemes (through buy-out), then we should be happy , pensioners have great security in such circumstances. But to throw “disruption” at members, as has happened in 2017 and continues to today, is another business.
Some proportion of the £34.25 bn, the Office for National Statistics estimated was transferred out of DB schemes last year, may well have been properly re-invested, but the FCA’s judgement is that a third of transfers were wrong and 53% were “questionable”.
Our job is not to stand quietly by and see these matters legitimised by insurers and pension consultants, it is to get “bloody furious” that so little is being done to promote “pensions”.
Last week saw an announcement that Defined Benefits schemes had swung back into the black. According to our FABI thinking, DB schemes were never broke and the present valuations which show them fixed, should be treated with as much distrust as valuations that told us 1000 schemes were bust.
One thing is for sure, it is very much easier to destroy a defined benefit scheme than keep it going. De-risking, whether through transfer tools or RAAs – is not the way to keep pensions getting paid, supporting the Pensions Regulator’s tough new line – is.