The UK government will soon be launching a consultation on defined benefit (DB) pension schemes, the new pensions minister told delegates at a major industry conference yesterday, flagging a “nudge” towards consolidation as a possible solution to problems in the sector but also saying he was very wary of being too downbeat about DB pensions.
Addressing delegates at the PLSA annual conference in Liverpool, Richard Harrington emphasised having an “open door” policy in terms of receiving feedback from the industry.
Harrington, who became a member of Parliament in 2010 and took on the ministerial pensions brief three months ago, also defended his position, in particular his independence.
“I don’t think it’s unusual to have a minister without a background in the field, and I don’t feel it’s right to criticise the system or me,” he said. “I’m not there as a crony of anyone.”
However, he said he happened to be good personal friends with key ministers at the Treasury, and that having relationships like this could be helpful for co-ordination between the two government departments.
He then turned his attention to the major pension issues in the UK, expressing his commitment to auto-enrolment before addressing issues in the DB pension sector.
The minister said he was “very wary of too much doom-mongering” about the DB pension system and that he was in close contact with The Pensions Regulator (TPR) and carefully monitoring the situation.
He said he did not know why UK pension funds were not investing more in higher-yielding assets such as residential rental real estate, adding that one reason could be that the industry was too fragmented.
“Several fund managers said this to me, ‘we can’t get in on these really big deals because we’re too fragmented’,” said Harrington. “Well, maybe the government needs to nudge it.”
He said that, where the government had done this with local authority pension funds, consolidation had come quickly – a reference to the formation of eight asset pools in the local government pension scheme (LGPS) sector.
The minister said he has been trying to find out what the government could do to alleviate pressure on DB schemes, such as whether the system of valuation was something the government could change, or whether regulations were preventing pension funds from investing in higher-yielding assets.
The government will soon be launching a Green Paper on DB pensions, he said, inviting stakeholders to participate in the consultation.
Harrington was speaking a day before the PLSA’s DB taskforce released an interim report that is quite critical of the current situation in the UK, calling the DB system inefficient and urging change.
Picking up on recent calls from TPR for it to be given more powers, the minister said the government was “very open-minded about this”.
It is waiting for the regulator to finish its negotiations with Philip Green over BHS, said Harrington, and it will then be considering “what powers the regulator’s got, what [Lesley Titcomb, TPR chief executive] has used, what she hasn’t used and what additional powers she might need”.
He dismissed the idea of there being a conflict for companies between dividends and pension scheme payments, saying he didn’t “buy” this.
“There’s a conflict between everything and dividends,” he said. “Why are pensions so different?”
Master trust bill, IORP II
The government introduced a highly anticipated bill to regulate master trusts yesterday, and the minister described this as “a comparatively simple bill” that was mainly about consumer protection.
“We can’t have a situation where some pension systems are regulated more than others,” he said.
The bill starts in the House of Lords before moving to the House of Commons.
Given the chance to briefly speak to the minister later, IPE asked Harrington whether the UK government would stick with the revised Directive on Institutions for Occupational Retirement Provision (IORPs), the EU pension fund legislation due to be voted on by the European Parliament in November.
EU member states will have two years to implement the law, which would be before the UK leaves the EU if Article 50 if is triggered in March 2017 and the exit takes all or close to the maximum of two years Article 50 allocates.
Harrington said his understanding was that, generally, most EU law would be be adopted and that “I have no reason to believe [the EU Directive] won’t be”.
“But, of course, it will be up to us, as opposed to the EU,” he said, adding that he could not predict what would happen with Brexit, and that the effect on pensions was unknown.