This 68 page report is probably the sternest rebuke to the Pensions Regulator and the DWP we have seen from Stephen Timms. It includes 23 recommendations which are clipped out here so you get none of the fat and all of the meat.
The current funding position
1. The Pensions Regulator and the Pension Protection Fund should continue to
work with the Office for National Statistics to reach an understanding of the funding
position of DB schemes and publish the results.
2.The Government should set out how it plans to promote
retirement income adequacy in the future and the role it sees DB schemes, particularly
open schemes, playing in this.
The scheme funding regime
3. In future, DWP should commit to ensuring that Parliament has the material
details it needs to make an informed judgement on the legislation it is being asked to
vote on.
- it is essential that DWP and TPR work with open schemes to address the remaining concerns—particularly around the employer covenant horizon—and report back to us on how they have done so before the new Funding Code is laid before Parliament.
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The objective to protect the PPF should be replaced with a new objective to protect future, as well as past, service benefits. TPR should work with the pensions industry on what the change would mean in practice and what capabilities it will need to deliver on it
effectively.
Scheme surplus
6. TPR should monitor trends in demand for buy-out and its alternatives and work with financial regulators to understand the implications. (Paragraph 59)
- DWP should conduct an assessment of the regulatory and governance framework that would be needed to ensure member benefits are safe and take steps to mitigate the risks before proceeding. (Paragraph 70)
We remain to be convinced that the PPF underpin would be an effective incentive to
trustees to consider increasing their investment risk. DWP and TPR should consider
whether there are changes to the funding regime that could give trustees confidence to
take appropriate investment risk. (Paragraph 74)
. TPR should undertake research to find out: how many schemes have provision for discretionary increases on pre-1997 benefits within their rules; whether the discretion is for the sponsoring employer or both; the number of years in which they have paid
discretionary increases on pre-1997 rights; and in the years they have not done so, the
reasons for this. (Paragraph 83)
DWP and TPR should explore ways to ensure that scheme members’ reasonable expectations for benefit enhancement are met, particularly where there has been a history of discretionary increases. (Paragraph 89)
Governance
11. The Government should continue to work with the industry to create an environment that supports investment in the UK economy. (Paragraph 96)
- DWP should introduce measures to improve the accountability of sole trustees and to enable scheme members to be involved in their appointment. (Paragraph 101)
DWP should set a date by which it intends to make accreditation mandatory for professional trustees. (Paragraph 108)
DWP should explore ways to support lay trustees with the time and costs needed to become accredited and report the results. It should set out plans for ensuring every trustee board has at least one accredited member, lay or professional and a timetable for achieving that. (Paragraph 109)
We recommend that TPR should use the register to report annually on the number of trustees who have completed the toolkit. (Paragraph 113)
The Government should consult on the detailed proposals of the Superfunds legislative
framework to protect member benefits and then introduce primary legislation for pension Superfunds as soon as possible. (Paragraph 125)
The Government should explain whether the core aim of a public consolidator
is to rescue stressed schemes likely to enter the PPF in any case, or is it for small
schemes who may face challenges accessing the buy-out market. (Paragraph 130)
18 TPR should consider requiring schemes to set out why they have pursued a particular
approach and why it is in the best interests of scheme members. (Paragraph 131)
Pension Protection Fund and Financial Assistance Scheme
- The Government should find an early legislative opportunity to give the PPF more
flexibility in how it sets the levy, allowing it to reduce it to zero and then increase it
again if necessary. (Paragraph 139)
20.. DWP should bring forward its promised consultation on levy changes and PPF compensation levels without delay. (Paragraph 142)
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The Government should legislate to provide indexation on compensation in respect of pre-1997 rights where scheme rules provided for that. It should work with the PPF to consider changes to compensation—such as raising the cap on indexation of post-1997
benefits above 2.5%—as part of its forthcoming consultation on levy changes and PPF
compensation levels. (Paragraph 151) -
The Government should review the Financial Assistance Scheme, including looking at the case for removing other discrepancies in FAS compensation, compared to the PPF, such as the continued application of the compensation cap and lack of interest on arrears. (Paragraph 161)
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The Government should report back to us by the summer recess on how it intends to ensure an adequate means of redress for AEAT pension scheme members. (Paragraph 165)