TPR and employer growth: Where did the objective come from – and will it stay?
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Many lobby groups circle parliament and ministers at any given moment, and pensions are no exception; but did government go too far in accommodating them when it introduced a new statutory requirement for the Pensions Regulator five years ago?
Opening its inquiry into the work of the regulator, the Work and Pensions Committee took evidence from TPR’s newly appointed chief executive, Charles Counsell, in June.
Committee member Chris Stephens questioned Counsell on how it assessed the strength and dividend policy of Carillion before its demise, to which Counsell replied: “There was a lot of pressure on us to take into account the health of the sponsoring employer.”
The “pressure”, Counsell said, came from a number of places, highlighting that “the CBI and the Treasury were very keen to make sure that we did not jeopardise the sustainability of employers. Of course, that led to the objective that we were given in 2014 to make sure that we took into account the sustainable growth of an employer.”
Counsell, in the belief that it was a matter of public record, named the Confederation of British Industry and the Treasury as those behind the introduction of the new objective.
This raises the question of how much influence lobby groups enjoy, particularly at the Treasury, which at that time was able to shake up pensions policy without prior consultation with fellow departments; apart from the new TPR objective, the freedom and choice reforms announced in 2014 by former chancellor George Osborne were, it seems, a further case in point.
Sponsor survival or shareholder greed?
The CBI has a strong interest in pensions; responding to the DWP’s 2013 consultation on introducing a new objective, it said the proposed draft by the DWP did not go far enough, suggesting instead that the regulator should not only have regard to employers but also any entities connected or associated with it, as well as to “the United Kingdom economy in general”.
In the same document, it stated that DB deficits were “a factor in slowing down the economic recovery”, and attacked TPR’s regulatory approach to discount rates, saying it had “failed time and time again to allow [the] flexibility provided for in legislation” and that it showed an “excessive bias in favour of gilt yields”, implying that pension deficits were inflated.
The DWP revealed it had meetings with the CBI between 2008 and 2014 where topics included anti-avoidance, Tata Steel and the DB Code. In addition, there were written exchanges between 2009 and 2014 covering areas such as contribution notices, TPR powers, financial support directions, the use of existing flexibilities – and an objective for TPR “regarding employer growth”.
A spokesperson for the CBI noted that the group speaks to politicians of all parties as well as relevant officials.
The spokesperson said: “It’s essential to paying benefits in full that the Pensions Regulator considers the long-term health of the business sponsoring pension schemes as well as actuarial factors. An overly conservative approach to scheme funding can increase the chance that companies fail, sending schemes to the Pension Protection Fund and reducing what employees receive in retirement. The need for this balance led to the CBI calling for the Pensions Regulator to have a new statutory objective.”
Altmann: Treasury ‘calls all the shots’ on pensions policy
The employer objective added in 2014 is seen by many in the pensions industry as a double bind for the regulator, as it can be in conflict with some of its other objectives – to protect member benefits and the PPF – and the influence of the Treasury on pensions policy is the cause of frustration for many involved in pensions.
Speaking from her experience as pensions minister, Baroness Ros Altmann said that the Treasury ultimately “calls all the shots” on pensions policy.
In her view, the Treasury is likely to be concerned about corporate stability after Brexit, especially without a withdrawal deal, and so unless the UK remains within the EU, she said it is “inevitable” the government will do more to protect business rather than pension schemes, particularly in the shorter term.
“I am sure the regulator will be concerned about this, but there is really nothing they can do if the Treasury insists on it,” she added.
Tension in TPR objectives could come to the fore again
Under a government “dominated by right-wing groups who are determined to force their changes on the country”, she believes it is likely that the protections for pension scheme members will be reduced and there will be an increased emphasis on the company sponsor’s financial survival.
But Altmann adds that “if the economy really is seriously at risk, that may not be the wrong thing to do from a macro-economic perspective”.
While the emphasis post-BHS and Carillion is on member protection, JLT’s chief actuary Charles Cowling said it would not take much for the regulatory pendulum to swing back from the current tough approach, to one where employer growth is more in focus again.
Protecting scheme members and employers simultaneously is not possible, says Cowling: “You can’t have both. Either you are looking after employers or after members and their benefits.”
