A powerful pensions regulator alone cannot stop Carillion-style scandals, government told

22 Aug 2018 By Hayley Kirton

Industry experts say wider changes needed to protect final salary schemes from reckless employers

Providing the pensions watchdog with more punitive powers would not, in itself, stop another scandal like Carillion or BHS, industry experts have advised the government. 

In June, the Department for Work and Pensions (DWP) launched a consultation examining whether The Pensions Regulator (TPR) should be given greater powers. The consultation, which is the first in a series based on March’s Protecting Defined Benefit Pension Schemes white paper, closed for feedback last night. 

Among the proposals was granting the regulator the ability to levy civil penalties of up to £1m to companies that mismanage their defined benefit (DB) pension schemes. At the moment, TPR can fine individuals up to £5,000 and corporations up to £50,000, as well commencing some criminal proceedings. 

Other proposals included widening the type of incidences employers must inform TPR about and requiring companies to explain what effect certain transactions might have on their pension scheme.

However, Alistair Russell-Smith, partner and head of corporate DB at Hymans Robertson, noted it was “doubtful if the package of proposals would have prevented high profile cases such as BHS and Carillion”. 

Russell-Smith added that much would turn on the suggestions put forward for the DB funding code, due to be consulted on next year. “If this clearly sets out what is expected then it could do more to improve outcomes than the consultation on powers,” he added. 

BHS had a pension deficit worth more than £200m – or an estimated £571m if bought out by insurers – when it collapsed in April 2016. The retailer appointed administrators roughly a year after tycoon Sir Philip Green sold the company for £1. The scheme was bought out earlier this month

Meanwhile, Carillion had an estimated £800m pension liability, or £2.6bn on an insurance buyout basis, when the facilities management company applied for bankruptcy in January.

Russell-Smith also noted TPR’s current powers were failing to act as an “effective deterrent” to those employers which did mismanage schemes, adding: “The lack of enforceable action taken historically means it is not currently a sufficient threat.”

But Nick Griggs, Barnett Waddingham’s head of corporate consulting, said that while his organisation supported a more “proactive” regulator, “this needs to be done in a balanced way so as not to unnecessarily restrict business activity”.

Meanwhile, law firm Eversheds Sutherland mentioned in its response that the government must be clear about what would trigger a penalty from TPR. “If...the system is difficult to interpret, transactions may be delayed and frequent and costly advice may be required,” it said. 

And the Institute and Faculty of Actuaries urged the government not to make changes to TPR’s powers which would place additional burdens on employers that treated their schemes well. It added it did not think it was appropriate to consult on penalties when revisions to other parts of the DB regime, such as the funding code, were in the pipeline. 

Commenting on the plans at the time the consultation was launched, a TPR spokesperson said: “The proposal to enable us to apply a range of sanctions, from administrative penalties to high-level fines and criminal charges, for different types of breaches, will provide TPR with a more flexible enforcement framework.”

And pensions minister Guy Opperman remarked the proposals aimed to “balance protection for pensions while not imposing unnecessary regulations on business”.

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