This is the third of my reviews of the Government’s response to the report below. I’ve got as far as recommendation 10  without finding one which bored me but here (later in the response) I find some of the recommendations are a bit thin,  I’ve brought together those targeted at helping trustees do their job (for instance).

The Work and Pension Select Committee 2024/5

The Work and Pension Select Committee have published a report on DB pensions which is the first under a Labour Government. Here it is to read and here is the link.

The Government’s response to the Work and Pension Select Committee’s report has a number of recommendations. You can read the first ten on the previous blogs. Here is #1Here is blog #2

Recommendation eleven – find ways for Trustees to invest DB assets in more interesting companies

We welcome confirmation from TPR and Ministers that the interests of pension savers are paramount and that investment decisions are for trustees in line with their fiduciary duties to act in the best interest of scheme beneficiaries.

The Government should continue to work with the industry to create an environment that supports investment in the UK economy. 

While the Government is likely to shortly produce another report explaining what can be done, the mandating of investment looks low on the priority risk for the Pension Bill (not least that that will principally be interested in making DC schemes more productive.

As I have said earlier in this series of blogs, the wiggle room for trustees is limited by regulatory obstacles such as section 58 of TPR’s code and more generally, a limitation on schemes that are closed and mature to get stuck in. The reality is that most DB pension schemes are not going to consider unnecessary risk as good – being professionals governance specialists  rather than entrepreneurs.

Recommendation twelve to – fifteen

These recommendations will be of interest to those who have trustee management in their remit but have little interest to a broader audience. I have grouped them together.

12. Sole trustees threatening good decision making.

The use of sole trustees is increasing. While they can bring knowledge and expertise, there is the potential for conflicts of interest. We are concerned that employers often have a unilateral power to appoint sole trustees in the place of the existing trustee board, including member nominated trustees.

DWP should introduce measures to improve the accountability of sole trustees and to enable scheme members to be involved in their appointment. 

13. Professional Trustees should be accredited

Despite strong support from TPR and trustee bodies for accreditation as a way to improve governance standards, they can only encourage it.

DWP should set a date by which it intends to make accreditation mandatory for professional trustees. 

14 Member nominated trustees should be encouraged

Member-nominated trustees play a vital role in representing the interests of scheme members and providing a link to the workforce.

As part of its planned engagement with stakeholders, 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. 

15. There should be a trustee register

We welcome the introduction of a trustee register as a way to improve TPR oversight of trustees and to communicate directly with them. We also welcome TPR’s decision to update the Trustee toolkit.

We recommend that TPR should use the register to report annually on the number of trustees who have completed the toolkit. 

Recommendation sixteen  – Super trust paperwork coming

TPR sees consolidation, including through Superfunds, as one of the main ways to improve governance, providing advantages of scale in terms of investment and governance. The Government committed to legislating for this in Mansion House as did DWP’s 2023 response to the consultation on pension Superfunds but there was no Bill in the King’s Speech at the start of this parliamentary session. It will be challenging for Superfunds to get off the ground without legislation.

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 says it is introducing provisions for a dedicated authorisation and supervision framework for Superfunds in the forthcoming Pension Schemes Bill, to support this form of consolidation. By the time this is in place and accompanied by regulations it will be ten years since the concept was launched. So far only one superfund has had the patience to meet the whims of the legislators and regulators.

It should not be a matter of credit to the DWP if they get something through the Pension Bill/Act. This is an example of a failure to convert a good ideas in 2016 into anything more.

I am not surprised that it this information is tucked away at the back of this response,

Recommendation seventeen- .

TPR’s approach to scheme funding has been driven by its objective to protect the PPF. We agree with those who told us that the objective now looks redundant, given the PPF has £12 billion in reserves. Two decades of regulatory policy caution have almost entirely destroyed the UK’s DB system. DWP and TPR need to act urgently to ensure they do not inadvertently finish off what few open schemes remain by further increasing the risk aversion, even while the risks of default have reduced substantially. Open and continuing schemes need confidence that the additional flexibilities that have been promised will be reflected in the actual approach regulators take in future.

To signal the change in approach needed for this, 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.

The Government can’t work out what to do and am sitting this in the queue behind the superfunds (which we see little evidence of past Clara)

Recommendation eighteen to the end (23)

The response is of little interest to me 

Recommendation 18

Given the improvements in scheme funding, trustees must ensure they secure benefits for members, be that through consolidation, buy-out or letting schemes run on. TPR should be proactive in encouraging trustees to assess the potential costs and benefits of different options rather than assuming this assessment is taking place.

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)

This is simply an explanation to members without clarity on how it is going to get to a group who are by now elderly and beyond working for the sponsor to whom benefits were granted. This may change eventually if the Dashboard takes a grip on our imagination but this looks like a low level issue for Government or WPC.

Recommendation 19

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)

There is considerable faffing about PPF factors but these appear to be job maintenance mechanisms for civil servants

Recommendation 20

We applaud the fact that the PPF is now reasonably confident that it has the funds it needs to meet potential claims on it. This is a significant achievement. There is now an opportunity to consider how the £12 billion in PPF reserves can be used to the benefit of PPF levy payers and scheme members. For scheme members, the priority is indexation on pre-1997 rights.

DWP should bring forward its promised consultation on levy changes and PPF compensation levels without delay. (Paragraph 142)

See above

Recommendation 21

Non-indexation of pre-1997 benefits has had a significant impact on PPF members and disproportionately on older members and women, reducing the value of their compensation in real terms. Given the £12 billion in PPF reserves, the potential impact on levy payers is no justification for continuing this policy. We welcome the fact that the Government will be consulting on levy changes and PPF compensation levels.

It 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 other 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. 

See section on pre-97

Recommendation 22

Financial Assistance Scheme (FAS) members are likely to have more of their service before 1997, so are particularly likely to be affected by non-indexation of pre-1997 benefits. Any improvements for PPF members should also apply to FAS members.

Given the age of many FAS members, the Government should legislate as a matter of urgency to provide indexation on FAS compensation for pre-1997 rights, where their schemes provided for this, funded by the taxpayer.

The Government see’s this a priority as FA members have suffered longest and have least expectancy of picking up in future

Recommendation twenty three

We support the recommendation of the Public Accounts Committee that the Government should “ensure that members’ complaints about the AEAT pension case can be independently reviewed, for example by a relevant ombudsman.” We agree with the pensions minister that it is important for a sense of justice and fairness that people should have an adequate means of redress.

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)

I don’t get this and the Government doesn’t offer any help

“The AEAT case is extremely complex and spans the responsibility of several departments. As stated in the Government response to the PAC report, this matter has been extensively investigated. There are no plans to offer specific redress to AEAT members”.