The Work and Pensions Committee has called for The Pensions Regulator (TPR) to impose greater fines on companies who avoid scheme obligations, in what it claims would act as a “nuclear deterrant” against another BHS-style disaster occurring.
A report published by the committee has proposed giving TPR the authority to impose punitive fines on employers of up to three-times the amount owed to an ailing scheme which, it believes, would reduce the chance of employers reneging on their pension promises.
And the committee said it expects such an elevated fine would never need to be levied in practice because it would act as such a “nuclear deterrent” to avoiding pension responsibilities.
The inquiry came as a result to the committee’s previous report into the collapse of BHS and the resulting £571m black hole in the retailer’s pension scheme.
The committee has been scathing of the two-year period it took TPR to intervene in the BHS case, as well as the 23-year deficit recovery plan that was agreed, and has subsequently proposed an initial set of measures for the government to consult on.
These included the reformation of TPR to a nimbler, more proactive regulator that could intervene sooner when difficulties in a company pension fund become apparent.
Among the other suggestions was a reduction in the statutory timescale for the submission of valuations and recovery plans to nine months, and for recovery plans of more than 10 years to be granted only in exceptional circumstances.
In addition, the committee has called for greater powers for scheme trustees. These include the ability to negotiate restructurings that result in better than Pension Protection Fund (PPF) outcomes for embattled schemes; being able to introduce flexibility to indexation to make schemes more sustainable; and being able to consolidate smaller schemes into a new PPF-managed fund to take advantage of economies of scale.
Committee chairman Frank Field said:”It is difficult to imagine The Pensions Regulator would still be having to negotiate with Sir Philip Green if he had been facing a bill of £1bn, rather than £350m. He would have sorted the pension scheme long ago.
“The measures we set out in this report are intended to reduce the chance of another scheme going down the BHS route. We hope and expect that 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.”
However, Hymans Robertson partner Patrick Bloomfield said pushing for recovery plans of less than 10 years for DB schemes was the wrong thing to do as it would force “wide-scale risk taking tantamount to gambling”, as well as put more strain on sponsors to contribute even more towards deficits.
He added. “Committing more cash to schemes is unaffordable for many companies. We need healthy sponsors to ensure there’s a good chance of paying benefits to pensioners in full, otherwise we risk more schemes falling into the PPF where members lose £45,000 of their benefits on average.”
Bloomfield said schemes should be encouraged to do the opposite: longer-term run off objectives which dial down investment risk.
“This paves the way for a slow and steady approach to funding,” he added. “Taking less risk and tackling today’s funding issues over a longer period can deliver much more stable contributions for sponsors, reducing the risks of unexpected cash calls undermining businesses and pensions.”
