The report makes a number of recommendations for the Government to take forward or consult on in its forthcoming Green Paper (see our December bulletin) on defined benefit pensions, which is expected to be published in early 2017. Some of these, though often well socialised in advance, would be quite radical such as:
- requiring compulsory Pensions Regulator clearance for some types of corporate activity (although the report is tantalisingly vague on what activity that might be);
- giving the Pensions Regulator power to issue punitive fines where it uses its “moral hazard” (or “anti-avoidance”) powers of up to double the amount required to be paid to the scheme (effectively tripling the overall exposure);
- giving the Pensions Regulator wider powers to wind-up pension schemes, thus triggering the full buy-out debt on the employer;
- giving trustees power, with the consent of the Pensions Regulator, to change the basis for pension increases and revaluation from RPI to CPI to assist schemes in distressed situations;
- reducing the period for agreeing a scheme valuation from 15 months to 9 months and, potentially, adjusting the usual three year valuation cycle to be either shorter or longer depending on the level of risk in the scheme; and
- having a statutory “aggregator” pension scheme (potentially run by the PPF), which would enable employers to settle their pensions liabilities without incurring the full “buy-out” cost associated with securing annuities with an insurance company.
Other recommendations would be more procedural in nature, but could provide welcome additional flexibility or streamlined processes such as:
- improving the process by which distressed employers can reach agreement with pension scheme trustees, the Pensions Regulator and the Pension Protection Fund (PPF) to compromise their pension liabilities, facilitating the restructuring of such companies in the interests of all stakeholders;
- allowing increased flexibility for small pension benefits to be taken as lump sums; and
- removing barriers for consolidation of pension schemes.
Further detail of the key recommendations, together with our initial thoughts on them are available here.
The extent to which any of this will result in significant change to pensions law and regulation will depend on what the Government actually takes forward. The Government should also consider the wider impact on businesses if it implements the Committee’s recommendations, for example, introducing punitive fines and mandatory clearance could significantly affect businesses that operate defined benefit schemes and ultimately cause job losses.
The Government is not obliged to include any of the recommendations of the report in the Green Paper, although Richard Harrington MP (DWP Parliamentary Under-Secretary) indicated during oral evidence to the Committee that some of the areas that have been considered by the Committee during its inquiry will be included in the Green Paper (such as scheme consolidation and indexation).
It will be interesting to see which recommendations are included in the Green Paper and which in turn ultimately form the basis of legislation. A 2011 survey by UCL found that 1/3 of substantive recommendations by select committees were adopted as policy and our high level analysis suggests that about 50 per cent of select committee recommendations are actually implemented in legislation.