A group of British politicians have called for radical reform of the defined benefit (DB) sector to avoid future scheme failures.
The Work and Pensions Committee has called for a series of new powers for the Pensions Regulator (TPR), including “nuclear deterrent” fines to force employers to confront their pension shortfalls.
The proposed reforms come as TPR is attempting to resolve the future of the British Homes Stores (BHS) pension scheme, and the saga formed the backdrop to the inquiry.
Frank Field, chair of the committee, argued that many of the proposals would have prevented the scheme from developing a large deficit and facing being absorbed into the Pension Protection Fund (PPF).
Field said: “We hope and expect we will never again see a company like BHS be able to come up with a 23-year recovery plan for its pension fund, and certainly not that it would take the regulator two years to really begin to do anything about it.”
Among the committee’s proposals are:
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“Nuclear deterrent” powers for TPR to fine employers three times a pension fund’s deficit if it refuses to engage with trustees;
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TPR to be given powers to intervene in corporate actions if they are perceived to threaten a pension fund;
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The establishment of an “aggregator fund” to take on small pension funds – potentially to be run by the PPF;
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An overhaul of the “regulated apportionment arrangement” framework to make it easier for schemes to separate from employers where appropriate;
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The introduction of a form of conditional indexation to allow stressed schemes to reduce liabilities;
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An extension of DB members’ ability to take their benefits as lump sums.
“To prevent another BHS, we need to have the means to nip inevitable disasters like this one in the bud,” Field added. “We hope the government will consult on the package of measures we propose, which would go a long way, without resorting to any new reams of red tape, towards doing just that.”
Next year, the government will publish a green paper aimed at pension reform, according to the pensions minister Richard Harrington.
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