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A consultation on the governance of trust-based schemes will be launched later this year. It will include questions about sole trustees, accreditation, and support for lay trustees, the response to the 2023 defined benefit inquiry reveals.
Pensions minister Torsten Bell pointed to reforms that have already been lined up, like plans to allow well-funded schemes to share surplus with sponsors and members, and changing legislation to let the Pension Protection Fund reduce its levy to zero.
He added: “While we are making positive changes through these already announced reforms, we want to go further. Reflecting on the Committee’s recommendations, we will explore ways to strengthen trustee capability and governance, to ensure we safeguard member benefits and maximise economic growth in a consolidated landscape.”
Sole trusteeship, accreditation and support for MNTs
The MPs’ report raised a wide range of questions, among others recommending that the Department for Work and Pensions should improve the accountability of sole trustees and even let scheme members be involved in their appointment.
The government responded that there are already safeguards in place in this area but added: “Through consultation we will establish what, if any, further action might be needed for the future as the pensions landscape changes.”
Similarly, select committee proposals to mandate accreditation for professional trustees and to explore how lay trustees can be supported were met by pointing to a consultation to improve governance “later this year”.
The Association of Member Nominated Trustees welcomed the government’s plan to consult on areas the AMNT considers are of concern, such as sole trusteeship and support for member-nominated trustees.
John Flynn, the association’s new co-chair, said: “MNTs are a vital part of the member protection safeguard and as an association we will continue to work with government and TPR to ensure that these protections are not in any way undermined.”
The Pensions Management Institute's chief strategy officer, Helen Forrest Hall, welcomed the response and commitment to a consultation to explore how to strengthen trustee capability and governance.
"In a world of increasingly large and complex pension schemes, it is only right that the sector considers the required knowledge and capabilities of those safeguarding the pensions of millions of members. The PMI has been working hard with the industry to drive up standards and further develop our education offering for trustees and we look forward to engaging with the government on this important work," she said.
The government will receive support from the Pensions Regulator. A TPR spokesperson said: “We’re focused on protecting defined benefit pension scheme members’ money and helping schemes to secure their long-term future. As this response says, we will continue working closely with the government to deliver even better outcomes for pension savers.”
Government remains vague about pre-97 uplifts
As well as governance, another key focus in the report is whether the current high funding levels of DB schemes should give rise to discretionary benefits for scheme members, in particular for those with pre-1997 accrual, which does not need to be uprated by law. As a result, many members who worked before 1997 have seen the real value of their benefits eroded over time, sometimes made permanent by a buyout, which many closed schemes aim for.
The DWP said it plans to work with TPR to understand why many schemes who could do so are not giving discretionary uplifts on pre-97 accrual, noting that scheme surpluses – once accessible – can be shared with members.
TPR data shows that 67% of schemes have provisions in their rules for discretionary benefits but of these, just 32% provided such increases in the past three years, despite high levels of inflation. Where increases were given, 15% were for pre-97 accrual. Nearly three-quarters of schemes that can give discretionary uplifts require the consent of both trustees and the scheme sponsor.
The issue of indexation for pre-97 accrual has been raised repeatedly by campaigning scheme members and highlights how they were sometimes led to believe, through scheme communications, that indexation was guaranteed when it was not. In 2022, Sotheby’s members took to the press to vent their anger, and there have been some ombudsman cases on the matter of scheme communications and indexation.
In 2017, a Westminster debate took place after former employees of Hewlett Packard and 3M protested about the lack of inflation increases, leading the then pensions minister Richard Harrington to write to the respective companies.
However, Harrington simultaneously ruled out changing the law retrospectively. Legal constraints could mean the current government might also find it difficult to force companies to change their stance, though it could perhaps require them to consider member uplifts when accessing DB surplus.
The government has more power when it comes to pre-97 accrual and indexation in the Pension Protection Fund and Financial Assistance Scheme, but this comes with taxpayer backing attached. It is perhaps unsurprising, then, that the response remains non-committal on such uplifts in the PPF, saying the government continues to take advice on options.
“These are complex matters requiring a balanced approach for those receiving compensation, levy payers and taxpayers,” the response reads. “The government is considering how it might address this issue and will provide further detail in due course.”
As for a cap on compensation, it was ruled unlawful in the PPF, but the government makes clear it has no intention of extending this to FAS members, saying the FAS was not included in the judgment and lifting the cap would “significantly increase costs to the exchequer”.
The PPF is also discussed in the context of DB consolidation. The idea of a PPF consolidator is something the new government has put less emphasis on than the previous one, but it has now said it continues “to explore whether a small, focused Government Consolidator, run by the PPF, could be an option for schemes less attractive to commercial providers”.
