“This year’s statement marks a shift in tone and emphasis, which isn’t surprising given DB pensions have caught both the public's attention and so galvanised politicians. In striking the difficult balance between investing in businesses and securing legacy pensions, the dial has moved several notches back towards security. This is at odds with where we were a few years ago when the "sustainable growth" objective arrived for the Pensions Regulator. It asks trustees of stressed schemes to consider tougher options, including winding-up. It’s also tougher on strong employers who are seeking to take their time to fund schemes based on that strength. Finally, it is tougher on the trustees of small schemes, who it hints are often not analysing or mitigating risks as well as they could or should.
“While the recent Green Paper on DB pensions from the DWP concluded that DB pensions are affordable for the majority of schemes, there is still significant risk in the system. Whatever politicians say, this risk is simply unavoidable. DB benefits do not come with a cast iron guarantee. The PPF’s modelling suggests that in the worst 10% of outcomes, 1,000 sponsors will be bankrupt by 2030. Some of these will be household name companies.
“The BHS case has highlighted politicians are unhappy with status quo. This feels like a step by the Regulator to move the industry into a more ‘satisfactory’ place. Given the current political climate, it would only take a few more situations similar to BHS to herald a change in legislation.
Commenting on the guidance tPR gives trustees on risk management, he added:“The guidance feels very ‘cash-focussed’ rather than ‘risk-focussed’ in terms of outcomes. The statement says ‘the continuing uncertainty over future economic conditions and the persistent low interest rate environment highlights the importance of effective risk management’. Yet there is very little on de-risking and taking less risk for longer, which can be a very effective lever for reducing risk. Indeed, the focus on recovery plan lengths could well drive some schemes towards the opposite behaviour.”
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