UK - The UK government has claimed regulations extending the powers of The Pension Regulator (TPR), to allow it to force employers to contribute to pension schemes in certain circumstances, will "renew trust" in pensions so people can save with confidence.
However, Mike O'Brien, minister for pensions reform, has admitted the new powers needed to be "effectively targeted" and "proportionate" so they do not hinder legitimate business activity.
In a speech to an insurance industry summit, O'Brien told attendees following a recent eight-week consultation the government had tabled an amendment to the current Pensions Bill 2008 proposals extending TPR's "moral hazard" powers - which includes clarification of situations in which it can issue Financial Support Directions (FSDs) and Contribution Notices. (See earlier IPE article: DWP extends TPR buyout powers)
The proposals were brought forward following growing concerns about new business models appearing in the pensions buyout market, which some claim reduce the security provided to pension schemes.
He said the government and industry "must be careful not to inadvertently sacrifice hard won trust in pensions for the sake of a new market solution" and claimed the consultation had revealed "an emerging consensus that the government is right to head off the risks highlighted by some new models before they materialise".
O'Brien claimed some buyout models "could create a perverse situation" where profits are privatised but losses would place members' benefits and the Pension Protection Fund (PPF) at risk, which "would create an asymmetry of risk that could lead to broken pension promises".
However, parts of the industry have raised concerns that the proposals are not specific enough, and could cause problems for the day-to-day running of a business.
Maria Stimpson, pensions partner at law firm Allen & Overy, said the proposals aim to protect members from the 'commoditisation' of schemes by new buyout models, which could affect members' benefits, but warned the government plans "go much further and could obstruct normal commercial activity".
She argued relying on "non-binding guidance" from TPR on how it will choose to exercise its powers is a "risky way to do business" for UK companies. (See earlier IPE article: TPR's buyout powers will be 'constrained')
Stimpson said: "We believe a more targeted approach is needed. Any guidelines issued - for example, about what constitutes 'detriment' and the types of corporate activity which could be affected - must be practical and unambiguous."
"We need clarity about what could connect a series of acts or omissions and turn them into a 'course of conduct' under the proposed changes; and there must be a workable defence for those who take corporate decisions reasonably and properly," she added.
O'Brien admitted "it is crucial that [TPR's] powers are proportionate. And that they are effectively targeted and do not inhibit legitimate business activity", and confirmed further consultation will be carried out on the detail of the regulations.
He said the government intends to "look at some of the suggestions we have received during consultation", including different approaches to the proposed alternative test for contribution notices, and the removal of the 'good faith' test.
O'Brien said the government needs to work with stakeholders to "ensure the law delivers our shared objectives, to protect members' interests and the PPF without placing undue costs or red tape on business".
"My commitment is that we will consult fully on the details before drafting the new regulations," he added.
Stimpson pointed out as the government proposes to make the changes through secondary legislation, with a lower level of parliamentary scrutiny than would otherwise apply, it is "all the more important that the draft regulations be made available for early and extensive consultation, in which we plan to take an active part".
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