The U.K. defined benefit market needs a “nuclear deterrent” for pension fund sponsors that might seek to avoid their responsibilities, recommends the Work and Pensions Committee, a House of Commons committee.
The committee published its report Wednesday, and made recommendations for changes in an upcoming government report on DB funds and their regulation. That report is set to be published early next year.
The committee wants to encourage proper funding of plans and to push employers to seek clearance for business transactions that might be detrimental to a company's pension fund. It proposes doing this by extending the anti-avoidance powers of the U.K.'s pensions watchdog, The Pensions Regulator.
The committee wants the government to consult on proposals to allow The Pensions Regulator to impose punitive fines that could triple the amount payable. “The intention would be that such fines would not need to be imposed: they would act as a nuclear deterrent to avoidance,” the report added.
The committee made a number of other recommendations, including a proposal that pension fund trustees receive authority to demand timely information from companies. It recommended that the government consult on proposals to enable trustees to consolidate small pension funds into a new aggregator fund managed by the Pension Protection Fund, London, the U.K.'s lifeboat for the funds of insolvent companies. It also wants to allow trustees to agree to changes to the indexation of benefits in instances in which it’s necessary to make a fund sustainable.
Regarding the current voluntary practice of employers seeking clearance from the regulator for major business transactions, the committee said: “We are wary of impeding the normal economic activity of mergers and acquisitions, but there is a strong case for clearance to be mandatory in certain circumstances when there is the greatest risk of material detriment to pension schemes.”
The committee's report details the outcome of its inquiry into the U.K. DB market, announced in May. It followed the committee's report on the collapse of retailer BHS Ltd., whose pension funds are under assessment for entry into the PPF.
The report is available on the Parliament’s website.
