mast image

Special Report

Impact investing

Sections

DWP extends TPR buyout powers

Related images

  • DWP extends TPR buyout powers

UK - The UK government is to extend The Pension Regulator's (TPR) powers to enable it to force employers to pay contributions to a pension scheme if their actions "threaten the security of members' pensions".

Proposals put forward by the Department for Work and Pensions (DWP) for consultation suggest extending TPR's ability to issue firms with contribution notices and financial support directions (FSD).

Mike O'Brien, the minister for pensions reform, said he is concerned some emerging business models in the pensions industry "might not give the same protection for pension schemes as traditionally provided by a sponsoring employer of insurance capital".

He first highlighted the issue in a debate on the Telent pension scheme, in February, when he announced DWP officials were "urgently" looking at ways to stop the buyout market from treating pension schemes "as just another commodity". (See earlier IPE.com story: Gov't targets 'commodity' treatment of pensions)

O'Brien has now launched an eight-week consultation on proposals to allow TPR to issue contribution notices when the "effect" of an action is "materially detrimental" to a scheme's ability to pay benefits, compared to the existing requirement to prove an "intent" to avoid funding the scheme.

In addition, the government intends to remove the existing provision which prevents TPR from issuing a contribution notice if a party has "acted in good faith", as it claimed "operational experience has shown this is an unhelpful hurdle" which prevents the power being used in situations where "parties have simply not considered impacts on pension schemes".

Other changes announced by the government include:

Clarification that contribution notices can be triggered by a series of acts and not just a single act; The resources of a whole group of companies can be considered for a FSD rather than identifying one single 'person', and
Allowing contribution notices to be issued where 'bulk transfers' of members between pension schemes is "detrimental to the interests of members".

O'Brien claimed the "vast majority" of pension schemes would be unaffected as the new powers would only be targeted at "risky situations" and "would apply to an employer or their associates, including investors in the employer, who might seek to profit from the scheme".

O'Brien said: "We need to ensure members' interests are protected. I want to guard against pension schemes simply being treated as a commodity to be bought or sold. The most effective way to tackle this problem is to give TPR the power to require contributions to pension schemes when an employer's actions reduce the security of members' benefits."

Pension Corporation, the insurer which triggered concerns when it purchased the Telent pension scheme in October 2007, said it welcomed the consultation as it "also advocates a reduction in pension scheme risk".

The firm added: "We have had a constructive meeting with Mike O'Brien, and look forward to responding to the consultation paper. We welcome moves to bring all pension funds up to the same level of governance as the schemes under our stewardship enjoy."

<

Tony Hobman, chief executive of TPR, added the package of changes "will enable us to better protect members where their benefits are at risk", although he pointed out TPR's track record "provides comfort that we will continue to act in a risk-based way, using our powers as a last resort".

In addition, TPR confirmed the proposals "do not change our established clearance process", and reassured applicants it will continue to operate the process in a "pragmatic, proportionate and responsive manner".

Although the changes require parliamentary approval, the DWP confirmed it intends to legislate at the earliest opportunity with the core amendments effective from April 14 2008, and the minor amendment relating to a series of actions by employers would be effective from April 27 2004 - the backdated action is a clarification of an earlier rule established on April 27, 2004.

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

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2559

    Asset class: Multi Assets.
    Asset region: -.
    Size: EUR 15m (may be split into two mandates EUR 7.5m).
    Closing date: 2019-09-06.

  • QN-2560

    Asset class: Private Equity.
    Asset region: Global.
    Size: $40m.
    Closing date: 2019-08-30.

  • QN-2561

    Asset class: Infrastructure.
    Asset region: Global.
    Size: $40m.
    Closing date: 2019-08-30.

Begin Your Search Here
<