Atkin Trustees November Newsletter

PPF as Public Consolidator :  The PPF is exploring the potential of becoming a public pension scheme consolidator, as outlined in a recent blog post by Sara Protheroe, the Chief Customer Officer of PPF. Ms. Protheroe has emphasized that the PPF is prepared to undertake this role and create a separate independent structure that can efficiently and effectively serve the pension industry.  This could possibly involve merging smaller, solvent pension schemes.

The government is also exploring options to incentivize pension schemes to invest in growth assets rather than adhering to their conventional low-risk investment strategies. One proposition is for the PPF to raise levies, providing schemes with 100% protection, thereby encouraging them to adopt riskier investment strategies.  However, this PPF backstop could create “moral hazard” where excessive risk is taken in the knowledge that this backstop can be relied upon to kick in if risks do not pay off.  Ultimately, any schemes that subsequently fall into the PPF would need to be funded by the remaining levy payers. 

Inflation – Impact on Pensions:  Recent data from the Office for National Statistics revealed a significant increase in the Consumer Prices Index (CPI) 6.7% and the Retail Prices Index (RPI) 8.9% over the 12 months to September.  Schemes that use September CPI as a reference and apply Limited Price Indexation to pensions in payment, will have to increase benefits accrued between April 1997 and April 2005 by at least 5%.  This falls short of price inflation, potentially prompting trustees to consider discretionary top-ups although noting that the increase in inflation has, subsequently, reduced. Meanwhile, GMPs accrued after 5 April 1988 should rise by 3.0%. For pensions in deferment, the 6.7% CPI increase may apply, subject to how the overriding cumulative cap applies in each case.

TPR – Keynote Speech to Pensions Industry:   In her keynote speech at the PLSA annual conference, Nausicaa Delfas, CEO of The Pensions Regulator (TPR), highlighted the significant changes happening in the pensions landscape. The shift from defined benefit (DB) to defined contribution (DC) schemes is at the forefront of this evolution. Delfas emphasized her belief in the importance of consolidation in DB schemes for better returns, as many smaller schemes lack scale. She also discussed TPR’s commitment to protecting savers’ interests, enhancing the system, and fostering innovation. The speech focused on the need for better governance and transparency, especially in the DB sector, while promoting innovation for the benefit of savers.  The text of the speech can be found here:  PLSA Annual Conference: Keynote speech | The Pensions Regulator

Whilst we can understand the desire of the new CEO to shake things up, we believe that this should not be for the sake of it.  Looking across the DB landscape, we do not see significant issues that require fixing.  The majority of schemes are showing healthy funding positions, have well developed governance practices and sophisticated investment strategies. The policy of active engagement with those schemes that were struggling under the current funding regime was working.  Whilst we accept that consolidators have a role to play in DB pension provision, this should evolve over time and without TPR and other external parties trying to influence it.  We are yet to be convinced that larger, consolidated schemes funds offer better member outcomes, provide better value for money or are able to deliver the same stakeholder experience as the current network of specialist small scheme providers who are able to take a different, more personal approach.    

Insolvency – TPR Updates Guidance:   TPR has updated its guidance on preparing for, and dealing with, sponsor insolvency.  The principal aim is to empower trustees with the knowledge and understanding of actions they can take to proactively counteract the consequences of employer financial distress. For employers already displaying signs of financial distress, the guide offers coverage of issues to be aware of and highlights the appropriate steps to be taken.  Employer distress and insolvency | The Pensions RegulatorTop of Form