Changes to proposed regulation and improvements in governance
standards are urgently needed to ensure private sector defined
benefit (DB) pension schemes remain an active and thriving part
of the pensions landscape and work in the best interest of scheme
members, MPs say today.
The Work and Pensions Committee report concludes
that despite a steady decline in number in recent years, DB
pension schemes are still of critical importance to both savers
and the UK economy. It warns however that two decades of
regulatory and policy caution from DWP and The Pensions Regulator
(TPR) have led to a low-risk approach to investment that
threatens to inadvertently finish off the few remaining DB
schemes still open to new members.
With an improvement in funding levels over the past decade
presenting new challenges and opportunities for schemes, the
report calls for a fresh approach both to funding regulation and
the treatment of surpluses in pension and compensation schemes.
Among recommendations on the latter, the report calls for DWP and
TPR to look at ways of ensuring the reasonable expectations of
scheme members for benefit enhancement are met where there has
been a history of discretionary increases.
On the new funding regime proposed by the Government to come into
force in September, the Committee’s inquiry heard concerns that
open schemes would be forced to de-risk unnecessarily,
potentially leading to premature closure. The Committee calls for
the Government to address such concerns in the final version of
the Funding Code and for TPR’s objective to protect the Pension
Protection Fund to be replaced with a new duty to protect future,
as well as past, service benefits.
PPF reserves now stand at £12 billion and the report calls for
legislation to allow the levy to be reduced to zero and for
compensation levels to be improved.
To encourage better governance, the Committee welcomes the
introduction of a trustee register to improve TPR oversight. The
report notes TPR’s view that consolidation, including through
pension Superfunds, is one of the main ways to improve
governance, and calls for the required legislation as soon as
possible.
Rt Hon Sir MP, Chair of the Work and
Pensions Committee, said:
“Defined benefit pension schemes are hugely important to savers
planning for a comfortable retirement and for the UK economy. The
improvement in scheme funding levels presents opportunities for
both to benefit, but a new approach to regulation and governance
is needed to protect the best interest of scheme members and
allow still open schemes to thrive.
“The flexibility afforded by the much-improved financial position
of the PPF, which we applaud, gives the Government an opportunity
to ensure open schemes are not hindered by overly cautious
restrictions imposed by regulations.
“While many trustee boards operate to high standards, new
standards for trustees can foster confidence that this is the
case across DB schemes.”
The report follows up on some of the points raised during the
Committee’s previous inquiry into DB pensions
with Liability Driven Investments, which examined the events
of autumn 2022. The Committee heard that a repeat of the events
was now unlikely given the steps taken to improve resilience.
A full list of the Committee’s conclusions and recommendations is
available on Pp 54–58 of the report.
