The much anticipated Government Green Paper (and so a discussion document) on the future of defined benefit pension schemes was issued last year. It covered areas such as:
- Funding and investment – how can schemes be encouraged to make more optimal investment decisions and mitigate any barriers to greater use of alternative asset classes, with the intention to commission further research on the quality of trustee investment decision making and factors that influence investment strategies and asset class choices.
- Employer contributions and affordability -the Government has been seeking views about possible options for struggling businesses to more easily separate from their pension schemes, renegotiate members’ benefits and to potentially give the Pensions Regulator more powers to separate or wind up such schemes in certain circumstances. However, the Paper also recognised these options have significant drawbacks and could raise moral hazard issues where employers seek to use (abuse) any easements to offload pension liabilities.
- Member protection - this is an area being watched with interest given the publicity around the collapse of some very large and well known businesses with defined benefit pension schemes in deficit. The Paper recognised that protecting members’ interests is at the heart of its policy and the role of the Pensions Regulator, but it also recognised that any new powers for the Regulator in relation to scheme funding, corporate restructuring and information gathering must be proportionate, taking into account its resources and finances. The Paper also looked at whether or not the Regulator should be more proactive in funding negotiations, and the role of any clearance regime in corporate activity.
- The Paper looked at options to bolster the Regulator’s information gathering powers, for example creating a duty on all parties in relation to a scheme to co-operate with the Regulator.
- Another area attracting much interest in the industry is the question of consolidating pension schemes as a means of achieving economies of scale and better governance.
The Government White Paper in this area (which will likely set out more concrete statements of Government policy and possible legislative change) is expected to be issued in the ‘Spring’. Employers should note what emerges and how it might affect the operation of their pension schemes.