In the wake of several high profile pensions cases, a number of initiatives from The Pensions Regulator (TPR) in recent months show a more robust stance being taken. Key emerging themes, supported in TPR’s 3 year corporate plan and the Department of Work and Pensions’ (DWP) Tailored Review of The Pensions Regulator, highlight its mission to become a more proactive and clearer, quicker and tougher regulator – but will this result in a ‘smarter’ regulator?

TPR Future

Launched in September 2018, ‘TPR Future’ introduced a new approach to regulatory supervision encouraging schemes to engage, to meet required standards, and emphasising the Regulator’s drive to provide clearer, quicker and tougher action. TPR Future also recognised TPR’s role as part of a wider framework of financial sector supervision.

TPR Future focuses on proactive engagement with a wide range of schemes and aims to provide clearer guidance about the Regulator’s expectations. While continuing to educate and support schemes, a tougher stance is expected for those who are wilfully ignoring or avoiding responsibilities, with member protection remaining paramount. TPR Future encourages focus on those areas where members face the greatest risks.

Four key areas form the basis of TPR’s new approach, being the setting of clear and measurable expectations, early identification of risk, driving compliance through supervision / enforcement, and working with others.

A select population of larger schemes have been identified through horizon scanning and are subject to one-to-one regulatory supervision with a nominated TPR contact. Additional and escalating regulatory effort will be focussed on schemes failing TPR’s standards. Different approaches to scrutiny will be tested and TPR have not ruled out issuing improvement plans.

A second strata of schemes will experience interactions based on a specific regulatory risk or issue, again making use of a range of possible interventions and regulatory action where required. These may vary from the appointment of a nominated TPR contact to letters, phone calls and participation in thematic reviews. In addition, schemes must complete a scheme return.

Publication of compliance failures reinforces TPR’s zero tolerance towards poor governance.

As the new approach takes hold, TPR will publish key achievements, review the effectiveness of their work, measure and track successes, and provide opportunities for feedback. Overall, scheme members will benefit from increased assurance that workplace pensions are secure. As the recent Tailored Review put it, ‘TPRF is a robust programme of change to meet the future needs of the occupational pensions industry’.

Protecting Defined Benefit Pension Schemes

Building on TPR’s new approach, in May, David Fairs (TPR’s executive director for regulatory policy, analysis and advice), outlined The Regulator’s vision for a revised Code of Practice on Scheme Funding, setting out the need for a long-term view of funding and investment strategy and making a distinction between open and closed schemes due to their maturity profiles. Emphasising that affordability is key, TPR will seek views on length of acceptable recovery plans in the context of strength of employer covenant, and considering the role of contingent support and investment strategy.

The aim is for the new code to provide a straightforward, fast track to demonstrating compliance whilst retaining flexibility.

Two consultations are expected; the first focusing on options for a DB funding framework and the second on the supporting legislative package. This follows the February 2019 Government response to the 2018 White Paper ‘Protecting Defined Benefit Pension Schemes’ which sets out improvements to TPR’s powers enabling it to be more proactive, to obtain timely information, to gain redress and to deter reckless behaviour. Whilst recognising that the majority of employers comply with their obligations, the Government intend to enhance TPR’s power to enable more effective intervention. Key proposals include:

  • Enhancements to the notifiable events regime to include notification of the sale of a material proportion of the business or assets of an employer and the granting of security on a debt with priority over the scheme. Further consultation will follow on the details and TPR will revise its Code of Practice and guidance
  • A Declaration of Intent in relation to corporate transactions requiring corporate planners to share certain proposals with trustees and TPR. The Government will work with TPR on implementation of these proposals, including timing requirements, which may prove contentious if the proposed transaction is commercially sensitive
  • Tougher penalties with maximum fines of up to £1m and the introduction of new criminal offences (for reckless actions such as allowing unsustainable deficits or excessive investment risks) and additional powers for TPR in relation to interviews and inspections. Proposals include unlimited fines and civil proceedings for failure to comply with a Contribution Notice. Indeed, the Tailored Review goes further suggesting that TPR should be given more freedom and the power to create rules surrounding their information requirements.

In addition, the Contribution Notice regime will be strengthened and the Financial Support Notices (FSN), previously Financial Support Direction, regime will be streamlined and broadened. The Regulated Apportionment Arrangement (RAA) regime was noted for further consideration. A suggestion for a mandatory clearance procedure around corporate restructuring raised concerns of disproportionate effects on normal economic activity. TPR guidance on the clearance process will be clarified.

Annual Funding Statement

TPR published their Annual Funding Statement 2019 in March. The 2019 statement outlines TPR’s expectation for a long-term funding target (LTFT) and journey plan to its achievement.

The statement sets out expectations for an investment strategy which is consistent with the LTFT, together with TPR’s views on the employer covenant and funding.

TPR’s new approach will include contacting schemes where there are concerns around aspects of the funding and investment approach, particularly focused on equitable treatment of stakeholders and the length of recovery plans. The statement makes clear that, whilst not condoning late valuations, TPR’s preference is for the best outcome, rather than a time compliant but sub-optimal result. A revised funding code is expected next year.

Trustees’ approach to valuations is discussed, highlighting the need for trustees and employers to agree a clear strategy for achieving a long–term goal balancing investment risk, contributions and covenant support, with aligned shorter term strategies.

TPR’s expectations are set out in a series of tables stratified by funding, covenant strength and maturity of the scheme, and containing considerations of appropriate alternative actions. The Statement goes on to clarify that it will consider a recovery period too long ‘if a relatively mature scheme with a strong employer has a recovery plan in excess of the average length for the universe of schemes’.

These messages are reinforced in TPR’s 3 year corporate plan.

In summary, the underlying messages from TPR indicate cohesive and joined-up thinking leading to transparency in the Regulator’s approach. Ultimately, clearer, quicker and tougher regulation should promote confidence in pensions saving… however, ‘smarter’ regulation will be dependent on successful delivery and implementation, backed by appropriate resources.

Anne Rodriguez
Senior Manager – KPMG LLP

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