The U.K.’s Pensions Regulator and Pension Protection Fund, London, have called for the regulator to be granted greater powers regarding the U.K.’s defined benefit funds.
In responses to the Work and Pensions Committee’s request for comment on corporate DB plans, The Pensions Regulator called for enhanced information-gathering and investigatory powers, greater flexibility over valuation periods — including requiring more regular valuations for pension funds over which they have concerns — and a mandatory clearance process for certain business transactions.
TPR said the government and Parliament could consider new obligations for sponsoring employers regarding business actions, such as the requirement to approach TPR for “mandatory clearance where a corporate action significantly weakens the scheme sponsor and the scheme is not sufficiently funded.”
TPR should continue to focus “heightened attention on high-risk schemes,” which would potentially require more flexible information-gathering powers and enhanced investigatory powers when the watchdog enforces its powers, it said in its response.
The regulator said the valuation process of a DB fund could be “revisited,” taking improved technology and the availability of real-time information into account. Measures could include greater flexibility to allow the regulator to ask for more regular valuations of higher-risk funds.
The PPF, which is the lifeboat for the pension funds of insolvent companies in the U.K., welcomed the inquiry, which it said was timely given that it comes “in the face of public concern about whether some employers are seeking to sidestep their pension promises, new business models which may serve to weaken member protection and stubbornly high deficit levels.”
In the PPF’s view, “more could be done to ensure that schemes are sufficiently funded and employers continue to stand behind their promises. To help achieve this, targeted improvements to the powers available to The Pensions Regulator may be needed.”
In the case of “stressed schemes” — those with poor funding and financially weak sponsoring employers — the PPF called for a “period of intensive scrutiny. This might include the appointment of an independent trustee, consideration of a restructuring of the sponsoring employers or that winding up the scheme might represent the best outcome for all parties,” including for the PPF itself. It added that there may be a case for TPR to have “a new and broad power to require the windup of pension schemes, which could be triggered at the request of either the trustee or ourselves.”
The responses are available on the Parliament’s website.