The Pensions Regulator (TPR) should be allowed to alter scheme indexation and benefits to ensure members get at least "second-best" outcomes.
The watchdog should also be able to compel stakeholders to attend interviews with it, and direct trustees to reduce benefits, including preserved benefits, of active and deferred members, the Pensions Institute has argued in a paper published today.
It also said members could be better protected if regulated apportionment arrangements (RAAs) were more easily accessible and "streamlined".
The report, Greatest Good 2, also added the compensation "cliff edge" for members entering the Pension Protection Fund (PPF) should be removed and replaced with a phasing approach to "introduce greater equity between member cohorts", particularly younger members. This phased approach would be based on age and length of the service, the report recommended.
The paper is also the Pension Institute's response to the Department for Work and Pensions' (DWP's) green paper on defined benefit (DB) security and sustainability, published in February.
Speaking at the launch of the report today, Pensions Institute director Professor David Blake said the current dichotomous approach to pension payment - where members receive full benefits or have them capped in the PPF - needed to be reformed.
"The current DB system destroys economic value because it focuses on binary outcomes," he said. "Allowing streamlined access to RAAs would make it easier to get an intermediate position and achieve second-best outcomes. Phased rules to PPF entry would be more equitable."
Fellow and co-author Matthew Roy added the current regulatory environment does not allow TPR to take a second-best approach.
"TPR has great powers but finds it difficult to use them to produce second-best outcomes," he said. "Giving TPR new powers to alter indexation, alter benefits, and interview stakeholders would help deliver [these].
"TPR should get more resources to use its existing powers for the greatest good for the greatest number, and publish detailed reports on how it uses its powers."
The report added TPR should be given additional resource to also enable it to conduct a comprehensive additional funding data collection exercise, which could then be used as an "early warning system" for stressed schemes.
Pensions and Lifetime Savings Association (PLSA) head of investment and governance Joe Dabrowski welcomed the report and praised its focus on this binary approach to outcomes.
"According to our own analysis, three million people have a 50:50 chance of seeing their DB benefits paid in full, which is a real concern for the industry and the government," he added.
"More work needs to be done to help sustain DB schemes by helping them to run effectively or consolidate if they wish to. It is time for the industry to think outside the box and consider what outcomes will provide the greatest good for the greatest number."
The PLSA's DB taskforce earlier this year called for schemes to merge into "superfunds", where employers could pay to ditch their responsibilities to the scheme.
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