Future or Past written on a blackboard

Media attention has been intently focused on the joint inquiry of the Work and Pensions and Business, Innovation and Skills Committees into the challenges faced by the BHS pension scheme.  For onlookers into a highly charged atmosphere, without possession of all the facts, it is difficult to draw definitive conclusions on what went wrong.

What is clear is that as a result of the inquiry, the problems facing defined benefit (DB) schemes have moved up the national agenda. The Work and Pensions Committee (the Committee) has launched an inquiry into the adequacy of the regulatory framework applied to DB schemes and will also consider whether the Pension Protection Fund (PPF) (the lifeboat fund for members of DB schemes) is sustainable.  Concerning the Pensions Regulator (TPR), the joint report into BHS stated that “It is essential that it has the powers, resources, leadership and commercial acumen to act decisively”.[1]

The Committee is accepting written submissions until 23 September 2016.

What is the inquiry about?

Broadly, the Committee will consider the following issues:

  • The adequacy of DB scheme regulation and regulatory powers
  • The recent use by TPR of these powers
  • The resourcing and prioritisation of TPR supervisory work
  • The implications of the regulatory approach for company behaviour, including whether it mitigates or incentivises moral hazard
  • The sustainability of the PPF
  • The fairness of the PPF levy system and its impact on businesses and scheme members.

What does TPR think?

Once the inquiry was announced, TPR’s chief executive, Lesley Titcomb, wrote to Frank Field, Chair of the Committee.  She suggests that there are four key themes which should be considered by the inquiry when looking at the future of TPR:

  • Information gathering – in her letter, Ms Titcomb suggests that the inquiry considers whether it would be appropriate to grant TPR a more flexible information gathering power. This might include the ability to compel parties to submit to an interview with TPR, if it is believed that the party holds relevant information. She also proposes the consideration of a general duty on parties to cooperate with TPR. This would build on TPR’s powers to require parties to produce documents and provide information at its request.
  • Clearance and anti-avoidance – Ms Titcomb is conscious that the obligations in this area should not unduly restrict UK business. Nevertheless she puts forward the possibility of imposing a requirement to involve TPR where a corporate transaction might put the security of the scheme at risk, or there is significant underfunding. In addition, Ms Titcomb suggests a consideration of whether the duties and obligations for sponsoring employers to collaborate with and provide information to the trustees should be strengthened.
  • Scheme funding and triennial valuations – this would involve the inquiry giving thought to whether TPR’s role within the scheme funding framework could be more supervisory in nature.
  • Scheme governance – Ms Titcomb recommends a consideration of scheme governance; one possibility would be extending the requirement to complete a chair’s statement to DB and public service pension schemes “as a way to encourage good governance across all pension schemes”. Another, perhaps more controversial option put forward for consideration, is the consolidation of smaller schemes. This proposal was briefly mentioned in TPR’s discussion paper on 21st Century Trusteeship and Governance.

What will the inquiry conclude?

The scope of the inquiry and the areas for consideration raised in TPR’s letter suggest a fundamental review of TPR’s powers and remit could take place.  A detailed review of the future of the PPF may also occur. It is likely that the inquiry alone will not be sufficient to reach conclusions and implement changes on such significant issues, but the announcement that the issue of regulation will be subject to scrutiny is a positive step.

Last year the Pensions Policy Institute published a report on the sustainability of pensions[2]. The conclusion was that around one in six DB pension schemes were unlikely to ever pay their full benefits; however earlier intervention might achieve a more positive outcome.

TPR acknowledges in its letter that a change in its role or obligations could have significant implications on its resources. The combined UK DB pension scheme deficit currently stands at around £1trn; it may be that the increased cost (to schemes? To the taxpayer?  To business?) is necessary if a higher sum could be wiped from the DB deficit as a result.

A written submission can be sent by clicking here before the deadline of 23 September 2016.

This post was contributed by Patricia Bailey. For more information, email blogs@gateleyplc.com.

[1] Paragraph 49 – House of Commons Work and Pensions and Business, Innovation and Skills Committees – BHS –

First Report of the Work and Pensions Committee and Fourth Report of the Business, Innovation and Skills Committee of Session 2016–17

[2] The Greatest Good for the Greatest Number

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.