May 16
Pensions Regulator gets tough in wake of Lionheart fallout

After several turbulent months spent thrashing around trying to defend its beleaguered reputation in the aftermath of the BHS scandal, a bedraggled Pensions Regulator has scrambled aboard the life raft of its annual funding statement and fired a warning shot across the bows of employers about the way they fund their defined benefit pension schemes in the future.

In my view, much of the criticism of the Pensions Regulator has been unfair.  Indeed, even some of the attacks on Sir Philip Green and his lavish lifestyle were arguably a little harsh.  I also consider that the current regulatory regime surrounding defined benefit pension schemes to be largely fit for purpose.  However, there is a consultation (which has just closed) about how the law might be changed, which includes the possible strengthening of the Pensions Regulator’s powers.  Furthermore, the Tory manifesto makes a pledge about protecting workers’ pensions which suggest that they are keen to do something, or at least to appear strong (and of course stable) in the run up to the election.
 
Whilst all this has been going on, it looks as if the Pensions Regulator has taken some of the abuse to heart and is now keen to make some waves of its own in the publication of the 2017 version of its annual funding statement.  I say that because the stance taken throughout the document is far tougher than it has been in previous years, certainly in more recent years.  For example, the Pensions Regulator says that:
  • It expects trustees with weaker employers to seek legally enforceable support.
  • Trustees of stressed schemes need to fully evidence that they have taken appropriate measures, including closing to future accrual, maximising non-cash support and security and considering a wind-up.
  • Schemes that are in a worse funding position should implement contingency plans and trustees should take decisive action where the scheme’s funding position has been on a downward trajectory for more than one valuation or if they have faced any significant adverse impacts.
  • Trustees need to have contingency plans that have been agreed with their employer in advance and are legally enforceable.
  • They are likely to intervene where they believe recovery plan end dates are being extended unnecessarily or where payments to shareholders are being prioritised.
The Pensions Regulator also promises tougher action against those failing to submit their valuations by the statutory deadline.
 
All of this could make the job of trustees and their sponsors that much more challenging as they look to complete their valuations!
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