Protecting Defined Benefit Pension Schemes

Head of Governance & Investment Joe Dabrowski shares PLSA views of the DWP's White Paper on protecting DB schemes.

On Monday the Department of Work and Pensions (DWP) published its long awaited White Paper - Protecting Defined Benefit Pension Schemes – one day before the Spring Equinox. Managing, just in time, to meet its commitment to publish this winter.

With the main body of proposals set out in 50 concise pages (half that of the 2017 Green Paper) it’s a punchy manifesto, with an emphasis throughout on the protection of members’ benefits, for the future shape of the defined benefit (DB) sector.

Although, it states that for the most part the rules are being clarified, and has avoided some headline grabbing changes, such a statutory override from RPI to CPI, the DWP has set out some potentially very substantive changes, including:

• Strengthening the regulatory framework, TPR’s enforcement and information gathering powers;
• Proposals to re-write scheme funding standards and governance requirements; including requiring a DB Chair’s statement; and
• Changes to the legislative framework to facilitate scheme consolidation and create an authorisation regime for commercial consolidators.

Over the last two years we have worked extremely closely with the DWP as they developed both the Green and White Papers, and believe there is a lot to welcome in the proposals. Although we are confident the regulatory framework will ensure most members of DB schemes see their benefits paid in full, we share the Government’s view that supporting schemes through a range of different measures will improve benefit security. Millions of people rely on private sector DB pensions for all or some of their retirement income, and need to be able to do so with confidence.

We know some employer covenants are under pressure. High profile company failures like Carillion and BHS clearly signal that this is a situation which cannot be ignored. The White Paper proposals, and those set out in the related BEIS consultation Insolvency and Corporate Governance, published this week, will help avoid or mitigate such scenarios. And whilst work will be needed to define their use in practice, the ability to impose significant fines, undertake enhanced information gathering exercises and introduce an increased oversight regime can all play a role in safeguarding people’s pensions.

Ensuring all schemes are run well is a basic principle of achieving good member outcomes. So, it is good to see the DWP take up our recommendation that all schemes should have a Chair of trustees and are introducing the requirement for a DB Chair’s statement – which will help ensure high standards of governance and operational effectiveness across the whole sector.

Consolidation is a key consideration in the White Paper, a theme that has been consistent in reviews from the FCA, the Pensions Regulator and the work of the PLSA DB Taskforce. There is, as referenced, a growing body of evidence that consolidation, in many forms could help some schemes. But there is still much to do to build the framework that could make that happen safely.

If you’d like to see more detail about the White Paper proposals click here but we look forward to working with DWP on this issue going forward as we work to strengthen the sustainable DB market and give more members the chance of receiving full benefits.

We would love to hear your views as part of OpenPLSA – you can find email addresses for members of the DB team here.