MPs urge TPR to remain alert to 'unscrupulous employers' amid Covid-19 easements

The Work and Pensions Select Committee (WPC) has urged The Pensions Regulator (TPR) to remain alert to the risk of unscrupulous employers who could look to take advantage of recent Covid-19 easements.

In a report on the Department for Work and Pension's (DWP) response to the Covid-19 pandemic, the committee praised the regulator for striking the "right balance" between acknowledging the difficulties faced by employers and the need to protect member savings.

It warned, however, that it "remains to be seen" how well this approach works in practice, stressing that whilst the flexibility shown by TPR was "appropriate", it “must remain alert” to the risks of abuse by “unscrupulous employers”.

Easements around deficit reduction contributions (DRCs) were highlighted as a particular concern, with the committee warning of employers who are not in financial difficulty but simply seeking to take advantage.

When discussing what kind of exceptional circumstances would allow dividends and bonuses to be paid legally by a company which had reduced its DRCs, TPR executive director of regulatory policy, analysis and advice, David Fairs, explained that these could involve guarantees or broader support from a larger organisation.

Fairs added: “One thing we are acutely aware of is that when easements were put in place after 2008, some employers - a very small number of employers - took advantage of the easements that were there, when, perhaps, they didn’t need to do that.”

The WPC’s report stated that “no reasonable person” would expect a firm that has suspended or reduced DRCs to be simultaneously paying dividends or bonuses, and urged TPR to “keep a close eye on this area”, and to raise the alarm if any abuse is detected.

Conversely, the WPC stressed that some employers who could benefit from a temporary pause in contributions, particularly smaller businesses, may feel reluctant to rely on only the assurance from TPR that it will not take enforcement action.

As such, the report recommended that TPR “communicates its expectations clearly to all employers”, especially smaller employers, who “may find it harder to make use of the short-term flexibility”.

The committee will continue to monitor the impact of the regulators approach, and specifically how well it is working for smaller businesses, over the “coming months”.

It also highlighted the increased risk of pension scams amid the Covid-19 pandemic.

The committee's report praised the proactive messaging and alertness shown by TPR, the Money and Pensions Service (Maps) and the Financial Conduct Authority (FCA), in response to the increased risk of pension scams.

However, despite recent joint campaigns by these regulatory bodies, such as the launch of a 'plain English' factsheet for members, WPC raised concerns that the messaging may not reach enough of those who are vulnerable to scams.

It urged the regulators to "work together" to monitor the effectiveness and reach of these communications, while the WPC itself will be undertaking “detailed work on pension scams in the near future”.

MPs also stressed that contributions made during the pandemic will be "particularly valuable" considering market conditions, adding that some members who opted out in light of financial strains amid the pandemic could stand to lose out.

Considering this, the committee recommended that TPR consider whether employees who have opted out during the pandemic, perhaps due to financial strains, should be helped to re-enrol earlier than would normally happen.

In response to the WPC's report, Fairs stated: “We welcome the committee’s report and their recognition of the flexible and pragmatic stance TPR has taken since the start of the Covid-19 pandemic.

“We have been clear in our latest guidance that, where employers in financial distress are offered help, it must be balanced with protections for scheme members and not abused. For example, where a firm has suspended deficit repair contributions because of Covid-19, we’ve said it would be unfair to resume dividend payments to shareholders before contributions have been restored."

AJ Bell senior analyst, Tom Selby, added: “The Covid-19 pandemic has placed huge strain on household incomes and it is inevitable some people struggling to make ends meet will have felt it necessary to opt-out of their workplace pension.

"It is crucial these people are nudged back into saving for retirement as soon as possible. Under current rules anyone who opts out will be re-enrolled automatically three years later.

“However, three years of missed contributions is not immaterial – someone earning £30,000 who had been auto-enrolled at the minimum level and chose to opt-out would have £5,702 less going towards their retirement, including £2,138 in employer contributions and £713 in tax relief.”

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