The Pensions Regulator has responded to the government’s green paper Security and Sustainability in Defined Benefit Pensions published in February 2017, seeking greater powers surrounding pension scheme deficits, definitions and business transaction clearances.
In its response, published today, TPR discussed its desire to have power to clarify certain terms in order to assist DB trustees.
"We believe there is a lack of clarity around some of the terms in the legislation, particularly around the definitions of 'prudence' and 'appropriateness'. These widely-drawn terms permit a variety of approaches across schemes towards their funding strategy and this can pose a challenge to both trustees and to TPR. We think it would help trustees if we clarified what we expect schemes to do with regards to funding, through clearer terminology," TPR CEO Lesley Titcomb said in a recent speech.
“There are two ways we could achieve that greater clarity. Either the clarity could be achieved through amending the legislation directly. Alternatively – and this is our preference – TPR could be given the power to set out clearer definitions or parameters in binding standards, with these standards being supported by a 'comply or explain' regime."
While TPR noted that a blanket requirement for parties to obtain clearance would be “too much” to ask for, it suggested that it should be allocated powers that enables it to “prevent transactions that would have a negative impact on a scheme”, Titcomb explained.
Titcomb added: “We also think there may be value in exploring the Green Paper’s suggestion of a fining system – which could deter poor behaviour and nudge employers to engage with us early in the process.”
The regulator also stated that it would like to revisit its "winding-up power" of schemes that are unable to meet their funding responsibilities, "to allow us to take into account all our objectives which are relevant to DB when considering whether to exercise it" the response said.
In addition, TPR's response explained the possibility of enabling the body to act quickly to emerging risks or introducing measures to encourage those employers who can afford to repair deficits to do so while they can.
Titcomb concluded: “All our suggestions are based on creating a regulator which can respond more quickly and effectively to risks, particularly where DB schemes are underfunded, or where we suspect avoidance.”
The regulator’s full response can be found here.