The long awaited White Paper on DB pension schemes was published by the DWP on 19 March 2018, over a year after the Green Paper in February 2017. Usually a White Paper sets out decisions that have been taken but this one proposes more consultation during 2018 on the powers of the Pensions Regulator, scheme funding and options for scheme consolidation.
The key messages of the White Paper are the protection of members benefits and punishing employers who do not play by the rules. The headlines following the paper’s publication were all about the Pensions Regulator being able to fine employers and the actions of the worst offenders becoming criminal offences. The DWP stated “The government believes the system is working well for the majority of DB schemes, trustees and sponsoring employers but accepts that there needs to be a tougher approach for those few whose irresponsible decisions impact on their pension scheme.” A lot of time and effort will go into creating these new powers and legislation but they are likely to be rarely used.
The White Paper includes the following proposals.
A stronger Pensions Regulator
More powers to punish those who deliberately put their pension scheme at risk.
Legislate to introduce a criminal offence to punish those found to have committed wilful or grossly reckless behaviour in relation to a pension scheme.
Strengthen the existing notifiable events framework and voluntary clearance regime so that employers have appropriate regard to pension considerations in any relevant corporate transactions.
Legislate to give the Regulator more information-gathering powers.
Improving the scheme funding system
Strengthen the Regulator’s ability to enforce DB scheme funding standards, through a revised Code of Practice, focussing on how prudence is demonstrated when assessing scheme liabilities, what factors are appropriate when considering recovery plans and ensuring a long-term view is considered when setting the statutory funding objective.
Require the trustees of DB pension schemes to appoint a Chair and for that Chair to report to the Regulator in the form of a Chair’s Statement, submitted with the scheme’s triennial valuation. The 15 month timescale for completing the triennial valuation is unchanged.
The DWP is ruling out measures which would override provisions in scheme rules and allow employers, or schemes, to change the measure of inflation used to calculate annual increases. This stance will disappoint many sponsoring employers who think it is unfair that they have to fund to high RPI inflation increases when others can move to lower cost CPI inflation simply due to slight wording differences in historic scheme rules.
Consult this year on proposals for a legislative framework, an authorisation regime and a new accreditation regime within which new forms of consolidation vehicles could operate.
It will be very interesting to see the pace of development of consolidation vehicles and the interest of employers and trustees to move away from stand alone governance of their DB scheme. I remain to be convinced of the benefits of consolidation and will discuss scheme costs, governance standards and investment strategy for small DB schemes in forthcoming blogs.