UK Pensions - White Paper on protecting defined benefit pension schemes

The much anticipated White Paper on protecting defined benefit (DB) pension schemes has been published today. This follows last year’s Green Paper on the security and sustainability of DB pension schemes. While recognising that the majority of schemes are well-managed and will be able to meet their liabilities, the White Paper includes several proposals which aim to maintain confidence in DB pensions by increasing the protection of members’ benefits. Some of the proposals have the potential to drive significant change in the DB pensions landscape, particularly in the context of scheme funding discussions and corporate transactions. Many of the proposals will, however, require primary legislation and the government has said that this is unlikely to be before the 2019–20 parliamentary session at the earliest. Nonetheless, trustees and employers of DB schemes will be keen to watch this space.

The White Paper includes proposals in three areas:

Strengthening the Pensions Regulator’s powers

The government intends to strengthen the Regulator’s powers by:

  • giving the Regulator powers to punish those who deliberately put their pension scheme at risk by introducing punitive fines;
  • introducing a criminal offence to punish those found to have committed wilful or grossly reckless behaviour in relation to a pension scheme and building on the existing process to support the disqualification of company directors;
  • strengthening the existing notifiable events framework and voluntary clearance regime so that employers have appropriate regard to pension considerations in any relevant corporate transactions, including improving the effectiveness and efficiency of the Regulator’s existing anti-avoidance powers; and
  • ensuring the Regulator receives the information required to conduct investigations effectively and efficiently, supported by penalties to drive co-operation.

Scheme funding

The government intends to “optimise” scheme funding by:

  • strengthening the Regulator’s ability to enforce scheme funding standards through a revised code of practice, which will focus on:

• how prudence is demonstrated when assessing scheme liabilities;

• what factors are appropriate when considering recovery plans; and

• ensuring a long-term view is considered when setting the statutory funding objective; and

  • requiring trustees of DB schemes to appoint a chair and produce a chair’s statement, which will need to be submitted with the scheme’s triennial valuation.

Encouraging consolidation

The government wants to encourage and facilitate consolidation by:

  • consulting on a new legislative framework and authorisation regime within which new forms of consolidation vehicles could operate;
  • consulting on a new accreditation regime which could help build confidence and encourage existing forms of consolidation;
  • raising awareness of the benefits of consolidation; and
  • considering some minor changes to guaranteed minimum pension (GMP) conversion legislation to support benefit simplification.

The government is proposing a phased approach to implementation. A small number of the proposals, such as working with the Regulator to increase trustee and employer awareness of their consolidation options, are to be implemented quickly. However, the White Paper acknowledges that most of the proposals are complex and require further work before proceeding to legislation to ensure the exact parameters of the proposals are effective, proportionate and workable. We can therefore expect several consultations during the rest of 2018 and into 2019, before seeing legislation “when parliamentary time allows”. Where primary legislation is required (this will be the case for most of the proposals), the White Paper confirms this is unlikely to be before the 2019–20 parliamentary session at the earliest.

We will provide further commentary on the proposals shortly and will keep you updated on their implementation as further details become known. If you have any questions in the meantime, please speak to your usual Linklaters contact.