Here is a summary of the most important points in the Work and Pensions Committee's (WPC) report on governance of defined benefit (DB) schemes.
The 94-page report published yesterday sets out a number of recommendations for the government, including giving the regulator new enforcement powers to avoid another British Home Stores (BHS) disaster.
MPs said the Pension Regulator (TPR) should be able to impose more punitive fines on sponsors and be nimbler to intervene more effectively in tricky cases.
Also, they called for extra powers for trustees and how to ensure the way the Pensions Protection Fund (PPF) levy is calculated is fair.
Here are the main recommendations:
According to MPs it is critical the industry learns the lessons from BHS which flagged up major issues for the regulator. Therefore the report suggests:
- Giving TPR powers to impose punitive fines that could treble the amount payable from a sponsor. This would act like a "nuclear deterrent"
- Making TPR more nimble so it intervenes more decisively and quickly if it chooses to do so
- The timetable for valuations should be flexible—shorter or longer—to reflect the riskiness of schemes
- The statutory timescale for the submission of valuations and recovery plans should be reduced to nine months, though TPR should intervene sooner where it has concerns; and
- Recovery plans of more than ten years should be exceptional
- The government should consult on new rules for situations where TPR clearance of major corporate transactions is mandatory rather than voluntary, allowing TPR to decide if a particular proposed corporate change could damage a pension scheme
The report recommends new powers for trustees to take decisions in the interests of scheme members, including:
- Being able to negotiate restructurings that result in better than PPF outcomes for schemes facing crisis
- Being able to introduce flexibility to indexation to make schemes more sustainable
- Being able to consolidate smaller schemes into a new statutory PPF-managed fund to take advantages of economies of scale
Finally the report suggests the PPF should consult on a means of adjusting the calculation of the levy to:
- Incentivise key aspects of good scheme governance
- Ensure particular types of employer, including small to medium sized enterprises and mutual societies, are not unfairly disadvantaged
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