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Gov't to increase TPR powers over buyout fears

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  • Gov't to increase TPR powers over buyout fears

UK - The government is planning to increase the power of The Pensions Regulator (TPR) to appoint independent or professional trustees to schemes, to tackle concerns about the pensions buyout market.

During the latest debate in the Pensions Bill Committee, Mike O'Brien, minister of state for pensions reform, tabled an amendment revising the powers of TPR to allow it to appoint trustees when it is "reasonable" instead of the current requirement to wait until the action is "necessary".

O'Brien said the measures would "provide innovation in the pensions market while understanding the risks that new development might present", and highlighted the case of the £3bn (€4.3bn) Telent pension scheme, which saw TPR appoint three independent trustees over fears the proposed pension buyout by Pensions Corporation would have "serious implications for the security and welfare" of scheme members. (See earlier IPE.com story: UK regulator appoints trustees to Telent scheme)

O'Brien said: "That case is one example of the way that developments in the pensions market can be very fast moving. Risks in the pensions environment can change quickly."

He pointed out the "new clause 23", which was agreed by all parties and added to the Bill, makes two changes to TPR's powers, the first being it would replace the "necessary" task, in section 7(3) of the Pensions Act 1995, with one of reasonableness so TPR may take action to appoint trustees where it is reasonable to do so.

The pensions minister argued the "necessary" test requires a high burden of proof that can "unnecessarily inhibit appropriate regulatory intervention" so reducing the threshold to "reasonableness" provides a "more appropriate tool" for tackling risks to members' interests.

In addition, O'Brien said a second change would give TPR the "flexibility to install trustees in circumstances where doing so is in members' interests, but the case does not meet the current narrow tests for action", although he confirmed TPR's actions would still have to comply with "the well-established principles of fairness and reasonableness" and would need to be approved by the independent determinations panel.

He added: "There have been a number of recent developments in the pensions buyout market, with the emergence of new providers and new business models. Much of that innovation is welcome, but we must ensure that risks are appropriately managed.

"We need to ensure that trustees are looking carefully at proposals for new buyout solutions to make sure that they provide the right levels of security for their scheme members. A business model that does not have either of those sources of backing should prompt questions about the security of member benefits," said O'Brien.

He revealed the government believes the buyout market "needs to be watched with a great deal of care" and claimed "if regulation is to be effective it must be sufficiently agile to enable swift intervention where there is justification".

He added: "I am concerned by recent developments in the market, although I agree that some of them are beneficial and might produce positive outcomes. We have seen the evolution of new types of pension vehicles suggesting that TPR is likely to face situations in the future that might make it difficult, under the current wording, to intervene."

Although O'Brien admitted TPR wanted its powers to be revised - as it "feels the change would be helpful in light of the changes in the buy-out market" - he claimed "it may appear the amendment will give massive extra powers, but it will not in practice. It merely clarifies the position of the regulator", he said.

That said, these powers will not come into effect until the amendment has been approved by both houses and the Bill has been given Royal Assent to become the Pensions Act 2008.

 

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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