Recent high profile insolvencies (e.g. Carillion and BHS) have seen widespread criticism of the Pensions Regulator (“TPR”). It stands charged with failure to use its intervention powers despite being aware of companies prioritising dividends over deficit recovery contributions, despite trustees urging it to intervene. By the time TPR took action it was too late.
The government are reluctant to see a repeat of either of the above cases, and have set out new TPR powers in a white paper entitled Protecting Defined Benefit Pension Schemes. The purpose behind this is to improve TPR’s powers to act against employers who “fail to treat schemes fairly”. This includes a new power to impose sanctions on company directors, and increased investigatory powers such as the power to summon individuals for interview.
While prima facie this appears to be a positive method of addressing the issue of intervening too little and too late mentioned above, what must be questioned is whether this is new power is actually necessary, and whether it will be too hard to use. TPR already has significant intervention powers which it can use against a company, for example a contribution notice (a requirement to pay cash sum to a scheme) or a financial support direction (a requirement to put financial support in place such as a guarantee). What TPR needs is not new powers. Instead, TPR needs to make better use of its existing powers, and to use such powers more effectively and, fundamentally, more quickly.
Perhaps instead of arming TPR with more powers, the solution is to arm TPR with better resources, both in terms of funding and personnel. If used effectively, TPR’s existing powers can be an adequate deterrent to mismanagement of pension schemes. It could be that the time has come to give TPR extra resources from the risk levies collected by the PPF.
The Prime Minister was keen to give TPR more powers in relation to takeovers, and even give it the ability to prevent deals it considered to be a threat to pension scheme solvency. However, a mandatory clearance process was criticised by respondents to the consultation amongst concerns that it could hinder corporate deal activity.
However, there is a lot to be said for the existing clearance system. Smart investors are already using the system voluntarily to enable them to anticipate TPR’s response to their proposed action, without actually then applying to TPR for clearance. Large scale corporate deal activity could be enhanced by increased use of the existing clearance system. TPR would need to ensure that they have adequate resources to process such applications quickly, so as to avoid delay to fast paced corporate transactions.
TPR will be well aware of this recent criticism, and will be keen to put this right, and avoid past mistakes. Companies should not assume that because TPR has not acted in high profile cases that it will not take action against them in future. Quite the opposite!