Where pensions are concerned, law and regulation do not stand still for a moment, and the obligations and burdens on employers and pension trustees do not ease. Hardly a week goes by without Frank Field and his Work and Pensions Select Committee asking questions of sponsoring employers and scheme trustees, and it's not just Parliament focusing on the funding and support of defined benefit pension schemes; the Pensions Regulator is also calling for greater powers of intervention.
The government's White Paper published in March this year indicates that the Pensions Regulator has requested and will be granted stronger funding powers, allowing it to intervene more easily and forcefully in scheme funding. These powers are already wide enough to allow the Regulator to direct how a scheme's technical provisions should be calculated, and how any deficit should be funded (and over what period) – it will be interesting to see how much power the Regulator will be given and how frequently it will seek to exercise those powers.
Separately, in its Annual Funding Statement (published April 2018), the Regulator made a stronger statement of what sponsoring employers and pension trustees should expect from it in the coming year than it has made in previous years. This indication of increased scrutiny and intervention is supported by its announcement that it has increased proactive casework with schemes by 90% over the past year, and that it is extending that proactive approach to include smaller schemes (i.e. schemes with fewer than 100 members).
By the Regulator's own admission, it is now clearer on what it expects from pension trustees, is quicker to act, and is tougher on those who fail to act in the interests of members.
A significant proportion of charities have legacy defined benefit pension arrangements, many of which are small schemes and/or supported by employers that are disproportionately small for the liabilities in question. Schemes in the process of a triennial valuation, or about to start that process, should expect a greater level of scrutiny over that valuation than they have previously experienced. Small schemes are no longer too small to avoid the attention and rigorous demands of the Regulator.
While this spotlight on smaller schemes will be concerning for some, and certainly not warmly welcomed by those who will bear the burden of dealing with increased interaction with the Regulator, it is not all doom and gloom. The Annual Funding Statement makes it clear that the Regulator remains committed to promoting a balance between supporting a strong, solvent, sponsoring employer, and ensuring adequate protection for members. We expect, therefore, that increased interaction with the Regulator will not necessarily result in increased financial burdens on sponsoring employers.
It is key that you have robust funding strategies in place (from your Schedule of Contributions, through risk management plan, to Statement of Investment Principles), and that your risk management plans are adequate should they ever be called upon. Where pension trustees and sponsoring employers take their responsibilities to members seriously, follow the law, and respect guidance, there should be nothing to fear from the Regulator's new-found proactivity.
If you would like to discuss the impact of these changes, or any of the requirements of the pensions funding regime, please do not hesitate to get in touch with your usual Withers contact or Estella Bogira, our pensions law specialist.
