The three trustees are not happy with the time taken to solve the DB pensions crisis!
A spokesperson for the Department of Work and Pensions (DWP) has said that the White Paper on DB Pension Schemes, expected this winter, will be published before the end of February 2018. So there’s a date for your diary! More important than the timescale for publication, what will the White Paper cover?
The DWP’s spokesperson, speaking at the recent PLSA Conference, helpfully indicated that the White Paper will consider three big issues.
Changing members’ benefit entitlements
The key aspect here is consideration of a “statutory override” that would allow schemes to switch from the Retail Prices Index (RPI) inflation measure to the Consumer Prices Index (CPI) inflation measure when it comes to increasing benefits before and after retirement. At present, if a scheme’s rules explicitly state use of RPI inflation, the scheme is stuck with this rate of increase. Probably good for the members but not so good for sponsoring employers who are struggling to pay contributions to reduce a significant deficit in their scheme.
Some schemes have been able to switch to the lower cost CPI inflation link merely because their scheme rules referred to statutory revaluation or indexation, and did not explicitly refer to RPI. This is where the phrase “rules lottery” applies, as the approach taken for one scheme when its rules were written is very different from the next scheme.
I am of the view that it is fair to treat all employers, trustees and members consistently, and given the current funding difficulties for many sponsoring employers, statutory override legislation should be introduced to enable all schemes to move to the CPI inflation measure.
Consolidation of DB schemes
The DWP has accepted that this is a very complex issue and it is “early days” in the debate on whether (small) DB pension schemes will benefit from consolidation on becoming part of a “superfund”. Thankfully, the DWP spokesperson said that the DWP is very unlikely to force consolidation on pension schemes. Please read one of my previous blogs, Small DB or Large DB?, to hear why I think consolidation is not required. Lots more to come from TDC on this subject!
Powers of the Pensions Regulator
The Pensions Regulator desperately wants to avoid further criticism of the like it received when BHS fell into administration and thousands of pension scheme members were adversely impacted. The DWP will be looking at extending the Regulator’s powers in relation to corporate transactions and this is likely to require more reporting by employers and trustees on more occasions.
The White Paper will be discussed and debated extensively from next February but it is very unlikely that there will be a Pensions Bill to introduce any new legislation before 2020. And the effective date of that legislation will be even further in the future. The three trustees are even more unhappy!