Pensions and financial inclusion minister Guy Opperman discusses the Government’s DB white paper.
The new financial year always brings with it a sense of new beginnings, as new projects are started and plans for the year ahead finalised. This is an especially busy time for the pensions industry and as I look ahead to the next few months I am excited about what we are doing to improve the industry.
In March, Money Marketing readers will have seen that a number of significant steps were taken to protect pension scheme members through the publication of our white paper.
Defined benefit pension liabilities are set to peak between 2020 and 2030. Although the vast majority of such schemes are well funded and provide hundreds of thousands of people with a secure retirement, a small number of high profile cases have undermined the public’s confidence in the system – and this is why a tougher approach is needed.
The ‘Protecting defined benefit pension schemes’ white paper lays out three ways in which we are going to improve the pensions industry: strengthening regulation, improving pension scheme funding and streamlining pension scheme consolidation.
I know that most employers want to do the right thing by their employees and care for their future. However, we need to guard against unscrupulous behaviour by a small minority and strengthen the powers of the Pensions Regulator.
To do so, we will give the regulator the powers to punish those who deliberately put their pension scheme at risk; legislate to introduce a criminal offence of reckless behaviour in relation to a pension scheme; build on the existing framework to improve the vetting of company directors; and ensure that employers take pension considerations into account during any relevant corporate transactions.
I want to reiterate that for the vast majority of pension providers and businesses, good governance is already a central part of their business model and structures. These measures are targeted at those who fail in, or ignore, their duties towards their pension scheme members.
One important function of the regulator is to support the funding of pension schemes. This support capacity will be improved by giving the regulator the ability to enforce clear funding standards on prudence, appropriate recovery plans and long-term objectives.
These new standards will help the pensions industry to become more efficient and transparent, and, as a result, will further build up the public’s trust.
Consolidation of pension schemes can, in the right circumstances, help schemes benefit from reduced costs, more effective investment strategies and improved governances.
No policy can exist in a vacuum
To encourage and facilitate these cost-effective consolidations, we will speak with businesses and pension providers to develop new forms of consolidation between pension funds. We will also encourage more forms of existing consolidation by assessing the possibility of a new accreditation regime; promote the benefits of consolidation; and consider some minor changes to legislation to support benefit simplification.
No policy can exist in a vacuum. These policy proposals will be introduced in a phased manner to get as much input from the industry as we can, to make the implementation process as smooth as possible. I look forward to working further with the industry, regulators and consumers on these next steps.
The DB pension system is working well. These proposed policy changes will enhance public trust in pensions. These measures will benefit scheme members, pension providers and businesses.
Guy Opperman is the minister for pensions and financial inclusion