“A little stick of Blackpool Rock”. Paul and Bim at the WPC

The Work and Pensions Committee concluded the oral evidence to its inquiry into defined benefit pension schemes by bringing together Pension Minister Paul Maynard and the Economic Secretary to the Treasury, Bim Afolami, to the party. Fiona Frobisher (soon to return to the Pensions Regulator) and Laura Webster (Director of Private Pensions and Tax at the Treasury) were helping out.

What was clear from the start was that Paul Maynard was keen to get two points across

that DB pension schemes could and should be encouraged to invest more in productive finance
that – where a surplus existed – it should be available to the sponsoring company to make itself more productive.

Bim Afolami, also new to post, was clearly onside, this was not going to be the DWP v Treasury knocking seven bells out of each other.

As an aside, Stephen Timms asked the question this blog was asking earlier in the month “what’s happened to the Pension Regulator’s report on LDI”. My assumption is that it is late – not for want of trying – but because it is very hard to get a consensus on if things really went wrong and if so – who was responsible. “Imminently” was a rather better than “in due course”, though both timeframes were deployed.

Timms questioned whether there was a “data gap” in the Pensions Regulator’s information. He was presumably referring to the £200bn gap in the PPF and the ONS’s estimates of losses to the capital base of DB schemes in 2022. (PPF £400bn v £600bn).

The DB funding code

A third timescale arose when Paul Maynard told the WPC that the DB Code would arrive “sooner rather than later“. It was beaten to it by the General Code (which arrived yesterday).

When the DB Code arrives , it sounds like a different Code to any iteration so far, with the emphasis being very much on employers focussing on the growth of the company rather than the protection of the pension scheme. The Pension Minister was keen to emphasise the role of Pension Superfunds and Public Sector consolidators in achieving this.

Afolami made the statement that DB schemes can both protect member benefits and invest productively. This is not the language of the DB funding code drafts I have read.

Is TPR being overly cautious in protecting the PPF?

Maynard saw no need to relax on the PPF’s stability despite it being £12bn in surplus. Maynard stated that he didn’t see the PPF as a primary source of productive capital

Off the rollercoaster and heading to an ice-cream?

The question was Nigel Mills’. Clearly he is looking for a soundbite as he came back to this phrase . Bim Afolami, author of the ” overseeing the quietist graveyard” descriptor of failing regulators, was seen to be scribbling furiously at this pointe.

I have remarked previously that the Pensions Minister likes a joke, he made a bid for pension immortality that he wished pension schemes would suck on a stick of Blackpool Rock and when challenged this was not good for health – he pointed out we should not bite off more than chew.

To Nigel Mills’ question , Maynard made it clear that schemes should continue to be cautious . But we are clearly in the fairground – not the graveyard.

On surplus extraction

Bim Afolami was on the “surplus case”. The surplus has to be cautiously allocated but if it’s really not needed in the scheme, it should be better with the employer.

“Surplus, where it is extracted, should be doing the most attractive thing for the economy and the members”

Nigel Mills responded , isn’t the employer saying “for God’s sake let’s just buy-out”.

Laura Webster pointed out that the reduction of tax-charges from 35 to 25% would be monitored to see whether it had a material impact on the number of schemes running on.

On Professional Trustees and the voluntary code.

With 500 registered professional trustees, the DWP is not ruling out mandating the code. How fast the DWP was moving towards mandating , was a matter of the advice the Pension Minister was getting.

Concern had been raised around the use of corporate and sole trustees. Maynard pointed out that this was a developing situation , appointment of sole trustees made by the employer could be a concern to TPR.

This would become a further item in the Minister’s discussions with TPR.

State Pension administration

Has the Government responded to the Ombudsman’s response on the maladministration of the State Pension

Paul Maynard was tight lipped about timescales.

Discretionary increases

The BP Pension Scheme was brought to the table. Maynard mentioned he was meeting with a fellow MP to discuss the BP situation next week. Maynard linked the advisability of paying discretionary schemes to the size of the scheme and sponsor but he refused to commit to a position on this. This sounded a little less common – sensical than I had been used to from the Pensions Minister.

Stephen Timms, reminded the Minister that there were legacy issues to do with indexation going back to the case of Hewlett-Packard – over 20 years ago. The Dec Pre-97 pensioners were in need of sympathy and Maynard said they would be marked “why oh why” in his inbox.

The PPF as a lifeboat proactively rescuing passengers from sound ships

Nigel Mills asked pertinent questions of how the PPF might be deployed to take passengers that didn’t “move fast enough”.

Fiona Frobisher talked of concepts under consideration by the DWP including schemes “investing for a surplus” , again I was reminded how far this talk is from the DB funding code drafts we have been fed over the past five years.

On Superfunds

Timms expressed surprise that the Chancellor had announced the arrival of superfunds without delivering permanent legislation in the King’s Speech. Afolami agreed that the Government was committed to providing permanent legislation “as soon as legislation allowed”. Timms remarked that the superfund consultation lasted five years and he wondered whether the way forward for superfunds could be achieved through secondary legislation. Afolami was not able to confirm that secondary legislation would do.

Timms pressed that the Treasury was blocking Superfunds. Afolami said the debate as to where the superfund existed relative to insurers was clear – using the Gateway test. He suggested that it is unlikely that the test would be changed but made more permanent.

Pre 97 indexation

No rabbits would appear from the DWP’s hat. The Minister met with Terry Monk and the action group last week and he noted that members of the group were in the room.

The Minister said “It is a process of reflecting and learning from what I have heard” both on pre-97 and FAS benefits. The £12bn surplus in the PPF was linked to the question (which sounds promising for the Action Group)

On the PPF levy

The Minister said he would like a pension bill every month as something needs to be done. He would put legislation on the books to find a way for the PPF levy to be reduced (perhaps to zero?)

Electronic communication

Issues to do with blockages in electronic communication in pensions were under consideration were under investigation and a succinct response was supplied by the Minister. A response would be forthcoming sooner rather than later. (These euphemisms were – as you can gather – a running gag of the Pension Minister’s).