GUEST COMMENT: The pension regulation pendulum

Written by Stephenson Harwood head of employment and pensions Mark Catchpole

There is a tension that lies at the heart of the regulation of occupational pensions, between the wish to protect or enhance members' interests, and a concern not to overburden the sponsor.

Former pensions minister Steve Webb has likened the swing between these competing forces to that of a pendulum. Depending upon the economic climate or the impact of specific events the pendulum of regulation swings, often behind the curve of the perceived issue it is trying to address.

It is worth bearing this tension in mind in the wake of the select committees' report into BHS which might result in calls for the tighter governance of occupational pension schemes and their sponsors. It should not be forgotten that it was not too long ago that the pendulum swing was in the opposite direction.

The Pension Regulator's updated Code on DB funding issued with effect from 2014 was driven in large part by concerns that sponsors were being required to put money into schemes at a time when their businesses were struggling in a recessionary environment and an economy weakened by the financial crisis.

The Code suggested that trustees should have regard to a sponsor's need for sustainable growth when agreeing recovery plans. They should be commercial and collaborative in their approach. This is clearly sensible until something goes wrong. When it does, the very people who were previously urging restraint, often politicians, ask why more was not paid into these schemes.

Indeed we are probably at a point where the pendulum may be swinging in both ways at the same time. In the direction of member protection, we have the select committees' damning report. In the other direction, we have potential economic instability following the Brexit vote and early signs of an imminent downturn in business activity. Added to this we have the recent proposals in relation to the reduction of benefits in the Halcrow Pension Scheme and a possible state sanctioned reduction in benefits, mooted in relation to the Tata Steel pension arrangements.

Under the member protection umbrella, the battle lines are drawn: on the one hand concern that BHS members' benefits will be reduced and on the other proposals to allow for the reduction of accrued benefits in respect of Tata Steel and Halcrow so that their businesses and the jobs associated with them may be saved.

It seems that in some circumstances it may be acceptable for members to be asked to take a haircut, and in others members will not have an option. Where they do have an option, the question is: is it right that members should be presented with such a choice between lower benefits and even lower benefits – is this a real choice?

It will be interesting to see whether these conflicting forces produce more protection, less protection or no change at all to protection. If there is to be change, I hope it will be to balance these forces rather than to favour one over the other. Equilibrium, whilst difficult to achieve, should be the aim of any legislation if we are to stay the constant swing of the pendulum.

Stephenson Harwood head of employment and pensions Mark Catchpole

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