Pensions - Articles - New TPR powers will not solve distressed pensions issues

Aon has found that nearly 70% of the audience at its Pensions Conferences thought that giving the Pensions Regulator (tPR) more powers may help distressed pension schemes, but that other changes are also required.

 The responses were gathered from nearly 400 pensions managers, trustees and company pensions representatives during Aon’s Pensions Conference series.

 The Department for Work & Pensions (DWP) will release a White Paper on defined benefit pensions in the Spring that is expected to tackle a range of issues, including how to help pension schemes with distressed employers.

 Lynda Whitney, partner at Aon explained: "I would speculate that the White Paper will propose that tPR receives new powers which would allow them to demand more information and to more easily commence winding-up of distressed schemes. But it was interesting to hear that over 70% of Aon's conference audience did not think this would be enough."

 Aon proposes that other actions required include:
 Giving company directors a responsibility to consider the current up-to-date funding of the scheme when deciding on dividends.
 Making benefit compromises easier to achieve if trustees decide that it is in members' best interests, and subject to tPR consent. This could allow a move to benefits with conditional indexation.
 Allowing existing benefits to be moved from RPI to CPI subject to trustee agreement.
 Using 'comply or explain' in a new DB Chair's Statement to encourage consolidation.

 In relation to company directors' responsibilities, Matthew Arends, partner at Aon said: "Theresa May is seeking tough new rules for company bosses. I believe they do need to think more about their pension schemes but draconian measures could damage the very companies that the schemes are relying on for support. Giving directors the duty to consider the pension scheme deficit before deciding on a dividend payment strikes a balance."

 On benefit compromises, Lynda Whitney said: "The benefit compromise options should only be used where the pain is being shared with all stakeholders and where it offers members a better outcome than entering the Pension Protection Fund. This is an area where there may also be a role for conditional indexation. We are seeing members select benefits without inflation protection when they are offered increasingly popular Pension Increase Exchange exercises - this could be similar. However, pension scheme benefits should not be compromised in order to pay dividends."

 For RPI vs CPI, Lynda Whitney said: "RPI has been discredited statistically and even the Governor of the Bank of England is now questioning how it could be phased out. It is historical luck whethera scheme's rules were drafted in a way that allows a move to CPI - and luck is not the basis of good policy. You could argue whether CPI or CPIH should be used, but for pensioners' expenditure, excluding housing cost is a reasonable approach."

 Consolidation should be considered, Matthew Arends said: "Using a new DB Chair's Statement as a 'comply or explain' tool will improve efficiency and drive consolidation where it is needed for the around 2,000 DB schemes with fewer than 100 members. This would create a climate for consolidation, encouraging larger, better governed, better managed and better invested schemes - unless trustees can demonstrate they can deliver to an equivalent standard."

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