UK - The Trades Union Congress (TUC) has warned a full review of the pension buyout market is needed to avoid putting pension schemes at risk from asset-stripping business models which it claims are seeking to avoid regulation.

In its submission to the government consultation on enhanced anti-avoidance powers for The Pensions Regulator (TPR), the TUC claimed the principles-based approach proposed in the document is the "most effective way" to provide TPR with the flexibility to adapt to the buyout market.

The organisation - which represents 66 affiliated UK unions - argued by introducing broad powers, but with clearly set out parameters in which they are to be used, "responses [by TPR] can be swift, proportionate and appropriate to the circumstances".

In addition, the TUC suggested the "clarity" provided by TPR, through indicating the type of circumstances in which it is likely to use the new powers, means the new regulations "should not place undue pressures on schemes".

That said, the organisation pointed out a full review of buyouts is needed to "anticipate any future threats to members' interests", and to ensure the regulatory regime is "adequate to deal with the changing nature of the industry".

The TUC argued while an insurance-based buyout "might be appropriate if it can provide greater security for members' benefits", there are "serious questions, however, about protection of benefits and funding levels in the non-insured models".

It also raised concerns about the ability of scheme members and trustees to "influence decisions and the security of scheme funding", and recommended the government should make the requirement for schemes to have 50% member-nominated trustees (MNTs) a "priority".

The organisation argued MNTs have an "essential role" in ensuring pension funds are governed in the best interests of the members, particularly in cases where the link between the sponsoring employer and the scheme is broken. 

It claimed "moving to require pension schemes to have 50% MNTs, as the government has pledged to do, is a priority in order to embed this protection and good governance", as it will help prevent trustees from being "bypassed" in any buyout decisions.

Brendan Barber, general secretary of the TUC, said: "The growth of increasingly complex and potentially risky new buyout models could pose a serious threat to pension schemes. Without better regulation, it would only be a matter of time before we face a scheme disaster.

"The additional powers granted to the Pensions Regulator are welcome. But new business models will emerge and a full review is needed so that pensions schemes are not put at risk by new asset-stripping business models that rely on avoiding regulation," he added.

The Department for Work and Pensions (DWP) issued a consultation in April on extensions to TPR's existing powers, which would allow the regulator to force employers to pay contributions to a scheme if their actions "threaten the security of members' pensions". The move follows concerns and questions in parliament about developments in the buyout market. (See earlier IPE story: DWP extends TPR buyout powers)

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