TPR to limit schemes' exposure to high-risk assets
UK - The UK Pensions Regulator (TPR) is planning to limit the freedom of schemes with large deficits to invest in risky asset classes, such as equities, property and alternative investments, its chairman has said.
David Norgrove, outgoing TPR chairman, told the annual National Association of Pension Funds (NAPF) trustee conference in London that where the covenant was weak and the liabilities could never be met by the sponsor, some schemes were taking inordinate risks to reach funding requirements.
He said that the regulator planned to prevent such schemes from doing so by limiting their exposure to high-risk assets, such as equities, property and alternative investments.
"We have to ensure they are not putting all their money on the 2.30 at Newmarket and if it doesn't work out, they will fall back on the PPF," he said, adding that where the employer was never likely to meet benefits, schemes should stop accruing further liabilities, essentially closing schemes to new members.
He said he was concerned about standards of governance, particularly at some smaller schemes, and that curbs on investment would move up the scale as more DB schemes were shut down or closed to new accruals.
Trustees will have to pursue contributions aggressively, as well as curtail investment risk, as schemes mature and sponsor interest in schemes wane, he said.
But he welcomed the beefing up of the regulator's powers, which he said had enabled it to remove 14 trustees, appoint 25 and impose recovery plans.
Elsewhere in his valedictory speech, Norgrove disclosed that TPR would publish a revised regulatory framework for defined contribution (DC) schemes in 2011, as the latter became the predominant form of company pension arrangement.
Norgrove said he regretted not having "got to grips" with DC schemes earlier, as DC members faced numerous risks, such as inappropriate investment decisions, high charges and insufficient resources for good governance.
He said he would prefer to have a few dozen well-run, trust-based DC schemes, rather than 50,000 sub-scale ones, which would struggle to be cost effective.