Where there is a weak employer, trustees and employers should work together to give greater consideration to the needs of the scheme.
The AFS clearly sets out what TPR expects from trustees and employers, according to the ability of the employer to support the scheme and the scheme’s funding strategy. It is particularly relevant to schemes calculating valuations with effective dates between 22 September 2017 and 21 September 2018 (Tranche 13).
TPR remains concerned about the growing disparity between dividends and deficit-reduction payments and expects fair treatment between shareholders and trustees. It will act if a scheme is not treated fairly by using existing powers, while working with government to implement new powers proposed in DWP’s DB White Paper.
At the same time, TPR has stepped up its proactive DB funding case work by 90% to support trustees as they prepare valuations and recovery plans.
Anthony Raymond, Interim Executive Director of Regulatory Policy, said: “In our 2018 AFS we are being clearer about our expectations of how trustees should approach their scheme valuations.
“Recent corporate failures have shown the risks of long recovery plans while payments to shareholders are excessive, relative to deficit-repair contributions.
“Trustees should negotiate robustly with the sponsoring employer to secure a fair deal for the pension scheme, while employers should balance the interests of pension savers with returns to shareholders and investors. We are working more closely than ever with trustees to support them in this process.
“However, if trustees fail to act we can intervene to protect members by using the full range of powers available to us now. We are also working with government to implement its white paper proposals.”
The AFS includes guidance on how trustees should approach a valuation and the current issues that may affect them, such as market conditions and the impact of Brexit. At an aggregate level for schemes in the current tranche of triennial valuations, TPR estimates that the funding level is likely to be marginally better compared to three years ago.
However, TPR’s data suggests there could be a wide variance between the circumstances of individual schemes, depending on their approaches to risk-management.
With continuing economic uncertainty, the AFS stresses the importance of risk-management and contingency planning. It also highlights that dividend payments may not be the only form of “leakage” of value from the companies which support DB schemes. Other examples include intra-group loans and transfers of business assets at less than fair value.
Member transfer requests should also be closely monitored in light of the potential impact on the scheme’s funding and investment strategy and to ensure the right quality of advice is available to members.
TPR has a range of powers and interventions which may be available where it is concerned that a pension scheme is not being treated fairly, or is poorly governed, including setting valuations and recovery plans, commissioning skilled person’s reports, issuing improvement notices and imposing penalties, suspending/prohibiting trustees, appointing independent trustees, or taking anti-avoidance action.
|
