Atkin trustees, actuaries, consultants & administrators

A pensions present from MPs

The House of Commons Work and Pensions Committee has today published its Report on Defined Benefit Schemes.

Undoubtedly the Committee has picked up on some significant issues in relation to the way in which defined benefit schemes operate.

The Report sets out a number of recommendations for further consideration and consultation, rather than immediate action. The recommendations do, however, set out a framework for potential future changes to legislation and trustees and sponsors will need to be aware of the potential consequences.

The main recommendations, summarised briefly, are:

- to give Trustees greater power to demand information from sponsors

- to use the PPF levy to influence good governance

- to reduce barriers to the consolidation of small schemes

- to consider setting up a consolidator arrangement for on-going small schemes (under the auspices of the PPF but without the need for the sponsor to be insolvent). We are particularly pleased to see this as we proposed exactly this form of arrangement to the Pensions Regulator some seven years ago.

- to relax rules for commuting small entitlements but with members given access to financial advice

- to take a risk based approach to actuarial valuations (some more frequent than triennial, others less)

- to reduce the time limit for completion of triennial valuations to 9 months

- to increase the power of the Pensions Regulator to impose a schedule of contributions

- to regard recovery plans of over 10 years as exceptional

- to have regard to potential anomalies in the PPF levy system, having regard to the fact that smaller companies are less likely to have resources to manage their levies efficiently

- to modify the approach to Regulated Apportionment Arrangements, where a Sponsor is in mortal danger to speed up the process and widen the scope - to permit trustees to use CPI rather than RPI increases where this is in the members’ interest (eg to stave off insolvency)

- to give the Pensions Regulator wider powers to wind up schemes

- to strengthen the clearance process in relation to corporate transactions so that, in certain, circumstances, advance clearance in compulsory and to levy substantial fines where clearance is not obtained

As stated, none of these recommendations instigate immediate changes to legislation or practice; they are all just recommendations. None of them require immediate action but clearly consultation documents are likely to be issued on some, perhaps all, of these recommendations in the near future.

This could, potentially, be the biggest shake up of final salary pension schemes since the Pensions Regulator was introduced. It will therefore be important that Trustees, their Sponsors and the wider industry make their views known to ensure that the long term implications of any changes are understood and taken into account. Ths is, especially true, for smaller Schemes and Sponsors who represent the majority of Schemes but whose views are not always given fair weight.

To learn more, visit http://www.parliament.uk/business/committees/committees-a-z/commons-select/work-and-pensions-committee/news-parliament-2015/defined-benefit-pension-schemes-report-published-16-17/.

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We have worked with Atkin Trustees for many years on a wide range of cases and issues. They adopt a sensibly practical approach to trusteeship, focusing on outcomes for members. They’re also a nice bunch of people to work with.

Philip W Sutton, Partner, Squire Sanders (UK) LLP