Pension Funds Insider

Pension Funds Insider brings the latest pensions news and industry insights; from investment and governance updates to new mandate appointments and pensions regulatory information.

Clearer, quicker, tougher

Image for Clearer, quicker, tougher  pension funds

Clearer, quicker, tougher - why TPR's new mantra matters to you  

Gone are the days when the Pensions Regulator (TPR) was, as it often said itself, a referee not a player.
Also gone are the days when, in the rare event that TPR became a player, it did so only when everything had gone so badly wrong that the employer had become insolvent and members’ benefits could not be secured in full. 

We have now been told that TPR will be “clearer, quicker, tougher”.

We have heard this message in many and various forums in recent times. And whilst there will be sceptics, I think we should believe the message.

TPR reinforced their new mantra earlier this month with the publication of their Corporate Plan 2018 – 2021. It sets out eight priorities for the next three years – with three of them expressly referring to “intervening”. 

And in response to the most recent criticisms from Frank Field (through the Joint report of the House of Commons’ committees), Lesley Titcomb said “We are now a very different organisation; we are clearer about what we expect, quicker to intervene and tougher on those who do not act in the interest of members.

So what sort of intervention can we now expect from TPR?

·       Apparently, behavioural expectations will be enforced though a variety of methods including the use of penalties and improvement / third party notices and, in due course, increasing the direct imposition of obligations on trustee Chairs.

·       Funding risks will be managed more proactively through engagement to encourage and influence, but with the threat and use of TPR’s powers to impose different outcomes.

·       TPR will build its case for the use of its powers though greater use of existing and new investigative powers including document disclosure and compulsory interviews.

It is clear that, whether through formal reports published on TPR’s website, soundbites in the press, or speeches at conferences, TPR will be raising its profile. And most pension schemes are likely to encounter first hand at least some of these powers, at some stage over the coming years.

Although TPR’s interventions may be wide and varied, I think we can expect to see the most activity in scheme funding. We are told that the majority of pension assets still remain in DB schemes and that there is currently a total deficit of around £500 billion. That is a big number on any analysis, and TPR wants to bring it down.

In a response to one of Frank Field’s questions earlier this year, Lesley Titcomb stated that, as of March this year, TPR had 126 active cases concerning scheme funding and recovery plans. I would be surprised if this did not increase significantly over the next couple of years.

But as we’ve seen from comments in the White Paper, TPR’s ability to impose its will directly in scheme funding situations has its limitations. TPR’s concerns tend to focus on whether assumptions underlying the technical provisions are “prudent” and whether the recovery plan is “appropriate”. But the legislation provides for the judgement on these matters to be exercised by the trustees. So we are told that changes to legislation will be coming, to strengthen TPR’s hand. 

What can we expect in the meantime? My experience has been a much more forthright regulator, now willing to positively tell trustees and employers the parameters (and sometimes even specifics) of an agreement it would be prepared to accept. Very definitely a player. 

Absent a willingness to bend to TPR’s will, trustees’ conduct is being scrutinised with a view to further persuasion and/or outright attack. They are being asked to disclose to TPR their advice, as well as minutes of their meetings and correspondence with the employer – and TPR has a power (that it can very easily use) to force disclosure, should it be required.

Whilst trustees might not always welcome this sort of ‘support’ from TPR (and employers certainly will not), it is the new reality and trustees and employers must be prepared for it. A robust paper trail that reflects good governance will be a very good start.

Peter Murphy, Partner, Sackers.