The Work and Pensions Committee has launched an inquiry into the Protecting defined benefit pension schemes white paper, which was published last month.
Following the committee’s Defined Benefit Pension Schemes report, the inquiry aims to inform and influence the planned consultation on the white paper’s various proposals.
In the white paper the government adopts the committee’s key recommendation: Strengthening The Pensions Regulator’s (TPR) main anti-avoidance power (the issuance of contribution notices) by enabling TPR to issue punitive fines to punish "irresponsible activities" that cause material detriment to a pension scheme.
The government says it will make it a criminal offence "to have committed wilful or grossly reckless behaviour in relation to a pension scheme" – although the details of this offence are unclear. TPR will also be granted enhanced investigative and information-gathering powers.
The white paper also announces consultations "during the rest of 2018 and into 2019”:
• Strengthening the voluntary clearance regime: The government will consult on the "specific design" of a tougher corporate clearance framework to better enable TPR to intervene in certain corporate transactions and ensure employers give due consideration to their defined benefit scheme. Clearance will however remain voluntary (the committee recommended that mandatory clearance be considered in certain circumstances);
• Clarified scheme funding standards: TPR will consult on a revised defined benefit funding code of practice to clarify the requirement for "prudence" in assessing scheme liabilities and what factors are "appropriate" when considering recovery plans – with sanctions and fines in the event of non-compliance;
• Consolidation: The government will consult "towards the end of 2018" on proposals for a legislative framework and authorisation regime to enable scheme consolidation – including arrangements whereby sponsors can pass on their liabilities to a commercial consolidator. This is in line with the committee’s recommendation that the government come forward with "proposals for removing regulatory and other barriers to scheme consolidation."
The Department for Work and Pensions has said that that constraints on parliamentary time will push any legislation necessary to bring the white paper’s proposals into effect back to "the 2019–20 parliamentary session at the earliest."
The Committee invites evidence from all interested parties on the following questions:
• To what extent is improving TPR’s effectiveness a matter of greater powers, better use of resources or cultural change in the organisation?
• What can be done to strengthen the regime for clearing corporate transactions (like dividend payouts, selloffs, takeovers) that might weaken a pension scheme?
• Will a criminal offence provide a meaningful deterrent?
• What should "prudent" and "appropriate" scheme funding mean?
• How can consolidation of the fragmented defined benefit landscape be best achieved?
• Given the difficulties facing defined benefit schemes, is a faster legislative timetable warranted?
The deadline for submissions is May 18 2018.