UK gov’t publishes defined benefit pensions white paper

The department for work and pensions (DWP) today published its long-awaited white paper on safeguarding defined benefit schemes.

Under the proposals, the Pensions Regulator will be given the power to fine company bosses who deliberately place defined benefit schemes at risk.

The DWP said it would work to improve “the effectiveness and efficiency” of the Pensions Regulator’s anti-avoidance powers while ensuring they do not have “an adverse effect on legitimate business activity and the wider economy”.

In a statement to the British parliament Esther McVey, Secretary of State for Work and Pensions, said that with around £1.5trn invested in defined benefit pensions, it was “crucially important that the system delivers the retirement income they have saved for over many years of hard work.”

“As we said when we published the green paper, DB schemes are an important pillar of the UK economy. We know that the vast majority of employers with these schemes want to do the right thing by their employees,” she said.

“However, to help trustees and employers work even more effectively towards a long-term goal, we are introducing changes to scheme funding. Where employers want the best for their employees, we want to ensure that the system supports this.

Tough line
Ian Browne, pensions expert at Old Mutual Wealth, commented on the white paper’s details, saying: “Negative headlines on defined benefit schemes have been haunting the news agenda for months now, leading the public and the Work and Pensions Committee screaming for definitive action. The long-awaited government white paper on Defined Benefit Schemes placed The Pensions Regulator (TPR) at the heart of its solutions, with the ‘regulator’ referred to 357 times in the 76 page report. The White Paper took a tough line with employers and its recommendations were squarely in favour of pension scheme members.

“TPR is set to be gifted with new powers to take a tougher and more proactive role, including giving fines and punishing reckless executive behavior around pension schemes as a criminal offense. This tough stance will focus executives minds and make them think twice before making irresponsible decisions. The paper positions the regulator as the consumers’ superhero who will protect them against misconduct.”

Dr Yvonne Braun, director of policy, long-term savings and protection at the Association of British Insurers (ABI) said: “The government’s defined benefit White Paper rightly identifies that there is much more work to do before new types of commercial consolidation of DB schemes can be delivered without putting scheme members’ benefits at risk. In particular, the paper suggests that ‘superfunds’ should not be required to fund schemes at the level required through buy-outs. This would create an uneven playing field and could put scheme members’ benefits at risk.

“The ABI believes that the existing insurance market is the best means for employers to secure the health and future of DB scheme members’ pensions while reducing their own risk. The market is thriving, with £10 billion worth of deals written in 2016 alone and around 40% were smaller transactions.

“More widely, we support the Paper’s push for clearer, quicker and tougher regulatory action where employers are not living up to their pension promises to employees.”

Christopher Copper-Ind
Christopher Copper-Ind is Editor of International Investment.

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