Defined Benefit Pension Schemes: Green Paper considers Committee recommendations
20 February 2017
The Work and Pensions Committee welcomes the Green Paper's consideration of the Committee's recommendations regarding defined benefit pension schemes.
- Read the letter from Richard Harrington MP to Frank Field MP re the Green Paper on Defined Benefit Pension Schemes (pdf, 75KB)
- Inquiry: Pension Protection Fund and the Pensions Regulator
- Work and Pensions Committee
Chair's comment
Commenting on today's publication of the Government's Green Paper on Defined Benefit Pension Schemes, and a letter from the Pensions Minister acknowledging the central role the Committee's work had in informing the Green Paper, Rt Hon Frank Field MP, Chair of the Committee, said:
"The Committee welcomes the Green Paper's comprehensive consideration of the recommendations in our Defined Benefit Pension Schemes report and the salutary lessons of BHS. We are pleased at the major contribution that our work has made in informing the Government's thinking. Indeed I think the effectiveness of the Government's actions in this area will in large measure be judged on whether it succeeds in preventing another BHS.
To that end we particularly welcome the Government's decision to consult on the option of adding the nuclear deterrent of punitive fines to the Regulator's arsenal of enforcement powers. While noting the Government's concerns about the threat of such fines inhibiting investment activity, the point of a charge big enough to act as a deterrent is that it would never need to be used: the prospect of a significant penalty would concentrate minds on achieving a timely resolution of scheme funding difficulties before they become critical. An effective deterrent also surely creates less of the uncertainty - and costs - that might scare potential investors than a protracted court battle over a settlement. The Government is right to explore the case for considering stronger Regulator powers in this area.
On consolidation, we are pleased that the Green Paper has put forward a number of options which would help encourage greater consolidation, but feel that if the market does not come up with a workable solution then the Government should revisit the question of whether it could helpfully fill that gap."
On indexation, the Chair added:
"On indexation, we agree with the Government that there are no grounds for it to be abandoned or reduced across the board, but welcome the proposal to examine whether there is a case temporarily to reduce or suspend indexation in cases where the employer is stressed and the scheme is underfunded, as long as this is in members' long-term interest.
The kind of flexibility proposed in the Paper needs to work both ways though: when better times return, and higher interest rates are on offer, flexibility should be shown on the other side in restoring workers' previous expectations of pension entitlements.
Rightly the Government identifies the biggest risk to scheme members as the collapse of the sponsoring employer, but there is a broader risk of employers failing to take proper responsibility for their schemes. In the case of BHS, while the final collapse was triggered by sponsor insolvency, the fundamental cause was a lamentable failure of corporate governance and abdication of responsibility to scheme members. We hope that the legislation that results from this, combined with the Government's consultation on corporate governance, will mark a clear shift towards ensuring that more companies are better governed, in the interests of all of those who depend on them."
Further information
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