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Pension Funds

U.K. government seeks increased powers for Pensions Regulator

Proposal would give regulator ability to impose fines, make criminal charges

The U.K. government wants stronger powers for The Pensions Regulator, improvements to pension funding and consolidation of plans under new proposals for the defined benefit industry.

In a white paper published Monday, the government said while the U.K. "already has a robust system in place to protect defined benefit pensions," citing the Pension Protection Fund — the lifeboat for the DB funds of insolvent companies — the evolving nature of pensions is "bringing new challenges for trustees and employers."

The white paper focuses on the £1.5 trillion ($2.1 trillion) corporate DB market and sets out the government's approach for the future of the system. It also "supports the (Pensions) Regulator's ambition to be clearer, quicker and tougher."

The government wants to enforce "tougher, more proactive powers so that the Pensions Regulator can intervene more effectively to protect individuals" where corporations are evading their obligations, said the paper. "For an employer whose behavior puts their pension scheme at risk and threatens the likelihood of members receiving their pension benefits in full, we are improving existing powers as well as introducing new powers for the regulator to get tougher."

The government added that its proposals "balance the protection of members' benefits with the sustainability of the sponsoring employer's business."

To strengthen TPR, the government will give it power to punish those who deliberately put their fund at risk "by introducing punitive fines," introduce a criminal offense for those who have "committed willful or grossly reckless behavior in relation to a pension scheme," and ensure the regulator receives information required to conduct investigations.

Regarding funding, the government proposes improving the regulator's ability to enforce DB funding standards and requiring that fund trustees appoint a chair, who will submit a statement with a fund's triennial valuation to "support trustees and their sponsoring employers to make the best possible long-term decisions for schemes, by providing greater clarity on what constitutes good practice and encouraging greater accountability."

The government also outlined the benefits of consolidation in the corporate sector, promoting reduced costs per participant, "more effective and efficient investment strategies and improved governance." The government cited existing examples of consolidation, including shared administrative services, asset pooling, fiduciary management and defined benefit master trusts, which are multiemployer DB funds. "However, there is a limited uptake of existing methods of consolidation. This may be due to an established practice of trusteeship and sponsorship wanting to retain full control of a scheme, regardless of the potential cost savings and increased security to members," noted the paper.

Regarding consolidation, the government said it will consult on proposals for a legislative framework and authorization regime under which new forms of consolidation vehicles could operate; and consult on a new accreditation regime to help build confidence and encourage existing forms of consolidation.

The government said it is proposing a "phased approach" to these changes. "There are a number of measures where, although we have agreement about what needs doing, more work is required to build a consensus about the best way to deliver our aims and to design the detail of our proposals. We will be consulting further on these areas. In addition, many of these areas are also likely to require primary legislation to deliver them once the next phase of engagement and design has concluded. Where this is the case we intend to legislate at the earliest opportunity," said the paper.