MPs call for change in TPR objectives after DB inquiry

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The Work and Pensions Committee has recommended the Pensions Regulator’s objective to protect the Pension Protection Fund should be replaced with one to protect future, as well as past, service benefits.  

MPs on Tuesday published their report following an inquiry into defined benefit pensions, saying that given the improved funding position of schemes, and the fact that the PPF now has £12bn in reserves, this objective was “no longer needed”.  

The report argues that open and continuing schemes needed confidence that the flexibilities promised to them within the new DB funding code would be reflected in the actual approach regulators take in future.   

“To signal the change in approach needed for this, TPR’s objective to protect the PPF should be replaced with a new objective to protect future, as well as past, service benefits,” it added, as well as giving the PPF flexibility to reduce its levy to zero.  

The MPs warned that the low-risk approach to DB funding which has developed over the past 20 years “threatens to inadvertently finish off the few remaining DB schemes still open to new members”.  

Committee chair Sir Stephen Timms said: “The improvement in scheme funding levels presents opportunities for both to benefit, but a new approach to regulation and governance is needed to protect the best interest of scheme members and allow still open schemes to thrive.” 

The regulator reacted to the report by suggesting current good funding levels are not guaranteed. 

A TPR spokesperson said: “It’s our job to make sure pension savers get their promised benefits, and although funding levels are at their best levels in recent memory with around 80% of pensions schemes fully funded, we are not complacent.” 

The spokesperson added: "Schemes can rapidly be affected by market conditions, corporate activity and insolvency events, which is why we make sure that effective long-term risk management is at the heart of our approach and the forthcoming DB Funding Code and Regulations. The Code also allows for open schemes with a strong sponsoring employer to invest a significant portion of their portfolio in growth assets. We will consider the committee’s recommendations carefully and respond in due course.” 

Leonard Bowman, head of corporate consulting at Hymans Robertson, who gave evidence to the committee last October, said he was grateful the committee recommended that TPR’s statutory objectives should be changed to secure future retirement provision.  
“We called for a DB renaissance, and so we’re... very glad that the committee has endorsed proposals to allow still open schemes to thrive,” Bowman said. 
With surplus capital in DB now estimated at £225bn by the DWP, “there’s a once in a lifetime opportunity for sharing that capital across the generations”, he added.   

Trusteeship: MPs want to see timetable for mandatory accreditation 

The report also makes several recommendations about trusteeship, including that the DWP legislate to make accreditation mandatory for professional trustees, while making sure lay trustees have the time and resources to become accredited.  

MPs want the government to mandate that every trustee board has at least one accredited member, with a timetable for achieving this.   

“It must also ensure that the new trustee register is used to ensure trustees complete TPR’s Trustee toolkit,” they add.  

Sir Stephen said: “While many trustee boards operate to high standards, new standards for trustees can foster confidence that this is the case across DB schemes.”  

The Association of Member Nominated Trustees has welcomed the report. Janice Turner, who co-chairs the AMNT and appeared at the inquiry, said: "I am delighted that the committee has listened to the points raised by the AMNT and accepted the need to protect and strengthen the role of member-nominated trustees in order to ensure a clear focus on the protection of member benefits. MNTs are a vital part of the governance process, but they risked being sidelined because of a lack of support and clear backing from employers and the regulator.” 
MNTs were mandated for pension fund boards to represent member interests after the Trinity Mirror pensions scandal. However, with the emergence of large multi-employer schemes like defined contribution master trusts, along with sole trusteeship, they are becoming less common and sometimes lack resources. 
Turner said: “The committee could not have been clearer in its support of MNTs, and I thank them for taking on board our concerns. Member protection is now firmly back at the heart of DB pension fund governance - where it must always be." 
Harus Rai, chair of the Association of Professional Pension Trustees, who also appeared before the committee, said the APPT welcomed many of the recommendations in the report. 
“The report is thoughtful on how DB governance can be enhanced, and we are supportive of their recommendations that a date should be set to make accreditation mandatory for professional trustees and that plans should be set out on a timetable for every trustee board to have at least one accredited member,” he said.  

As part of last year’s Mansion House reform consultations, the government issued a call for evidence on the skills and capabilities of pension trustees, to improve governance and increase investment in unlisted equities. In its response, the DWP said it will consider whether legislation should be taken forward to mandate accreditation in future, and pointed out that accreditation will be expected under TPR’s new General Code.  

What about scheme members?  

While recommending a move away from protecting past service accrual, the committee at the same time warned that easier surplus extraction, as proposed by the Department for Work and Pensions, must not come at the expense of member security.   

It argued that “recent experience has illustrated the volatility in scheme funding levels and the jury is out on whether schemes have locked in their gains” and pointed to governance as a key tool to protect members.   

“We recommend that DWP should conduct an assessment of the regulatory and governance framework that would be needed to ensure member benefits are safe and take steps to mitigate the risks before proceeding,” MPs said. 
In addition, having heard from members of the Hewlett-Packard scheme, the BP Pension Fund and BAE’s Royal Ordnance Pension Scheme, it said the DWP and TPR should “explore ways to ensure that scheme members’ reasonable expectations for benefit enhancement are met, particularly where there has been a history of discretionary increases”, especially in relation to pre-97 indexation. It also said TPR should find out the extent of the problem.  

Pensioners have been campaigning on discretionary indexation on many occasions, including  in the case of the Sotheby’s pensioners and in 2017, when former pensions minister Richard Harrington wrote to the chief executives of HP and 3M about the matter.

Rai said the committee’s suggestions on protecting members’ benefits should there be changes in rules on extraction of DB surplus were “proportionate and thoughtful”.   

Several other recommendations were made by the committee. It said the government should now consult on and legislate for superfunds, but it appeared to have some reservations about the push for a public sector consolidator.  

“There may be a good case for a public consolidator,” the report reads. “However, there are complex issues to address, particularly in relation to who would underwrite the risk, the impact on member benefits and how its introduction would be justified.”  

MPs want the government to explain whether the core aim of a public consolidator is to rescue stressed schemes likely to enter the PPF in any case or if it is for small schemes who face challenges accessing the buyout market.  

Do you agree that the objective to protect the PPF should be changed to include future service benefits? 

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