UK – The UK government should give the Pensions Regulator (TPR) more resources to engage with individual schemes instead of forcing it to consider an additional statutory objective, the Society of Pension Consultants (SPC) has argued.
Responding to the Department for Work & Pensions (DWP) proposal to introduce a new statutory objective for the regulator – one that would require it to explicitly consider the impact of deficit reduction payments on a sponsoring company's health – the SPC noted that the regulator had already taken this into account.
John Mortimer, the organisation's secretary, said: "The requirement on the regulator to protect the position of the Pension Protection Fund (PPF) [already] leads it to lend due weight to long-term affordability of deficit recovery plans to sponsoring employers."
Summarising its member's responses on the issue, the SPC also warned that a new objective would risk compounding the "misalignment" present in the regulator's existing objectives, a view shared by Zöe Lynch of law firm Sackers.
Lynch asked how the new objective would be enforced, and added: "Any new objective also needs to be considered in the terms of TPR's existing objectives, to protect security of members' benefits and to protect the PPF."
The society suggested that, in place of a new objective, TPR should be given further resources to participate actively in a greater number of recovery plan negotiations.
It noted that the "restricted" level of resources available at present forced the regulator to issue general statements "which can be difficult to apply to specific valuation processes".
"If the regulator had the resources to directly engage with more schemes during their valuation process, solutions on deficit recovery more directly applicable to specific employers and schemes would probably be easier to find, without a further statutory objective," it said.
It said TPR's involvement often resulted in outcomes that trustees alone would be unable to accomplish.
"Once the regulator and the PPF become involved in a case, they often come to a pragmatic arrangement," SPC said, citing the recent case of UK Coal spinning off its property holdings into a standalone real estate company largely owned by its two pension funds.
It said such pragmatic arrangements often allowed a company to stabilise, while continuing contributions.
"It seems that, before they are involved, it is very hard for trustees to take a similarly pragmatic view," the society added.
The SPC's view was at odds with the National Association of Pension Funds, largely supportive of a new objective for the regulator.
Mel Duffield, the organisation's head of research, said it had long argued for longer-term company sustainability to be considered by TPR.
"However, we are concerned that the wording of the objective proposed by the government may be too narrow, and we are recommending it be amended to be broader," she said, noting that the preferred working would be to "ensure the health and longevity of pensions".
"This is more likely to achieve the government's stated aims of ensuring defined benefit pension regulation does not act as a brake on investment and growth and would provide a stronger check and balance against the regulator's existing objectives," Duffield said.
The SPC also addressed the potential introduction of smoothing for pension funds, considered by the DWP as part of the same consultation.
But it said the approach was unlikely to impact liabilities if the timeframe examined was less than five years.
"A period longer than five years could give rise to an unacceptable risk that smoothing would lead to economic and financial realities being ignored," the response said, adding that, if funds entered the PPF after smoothing, they would be less well funded than without the alternative discount rate approach.
"Continuing employers would pay for the smoothing in respect of the scheme that had now entered the PPF," the SPC concluded.
The concerns seem to echo previous warnings that smoothing could have "serious unintended consequences".