Are the select committee’s DB recommendations workable?

Broadly speaking, some are eminently workable, others are problematic, and the remainder are probably pipe dreams.

Pressure on parliamentary time will increase due to Brexit, so pension reforms needing only policy changes through the Pensions Regulator or Pension Protection Fund, and regulations rather than new acts of parliament, may stand a better chance of success.

Low hanging fruit

The most workable recommendations are:

• Improving communication between employers, trustees and the regulator. The regulator is due to publish its plan, ‘TPR Future’, in the next few months;
• The regulator to be more proactive, subject to it being adequately resourced;
• Shortening the completion deadline for valuations from 15 to 9 months is achievable, as real-time data is available and the recommendation can be implemented by secondary legislation;
• Shortening deficit recovery periods: The length of recovery periods is not specified in pension legislation, and so the regulator can easily adjust its policy;
• Cashing in of small DB pension pots is, subject to improving the advice framework, a very workable change;
• Streamlining the regulator’s anti-avoidance powers and punitive fines is workable, but primary legislation would be needed;
• Helping distressed schemes is achievable by secondary legislation amending the debt regulations and by aligning TPR/PPF policy;
• Making the PPF levy fairer: The PPF can include appropriate provisions in its levy determination ahead of the levy year starting in 2018. 

So what’s not workable?

Certain recommendations are groundbreakers and are unlikely to come to fruition, such as aggregator funds, the proposed consolidation of small DB schemes, or incentivising good governance by weighting the PPF levy.

These are full of potential problems in ensuring a fair result.

What might work

There are two major and important recommendations to consider here: an overriding power to switch pension increases from RPI to another index, either permanently or conditionally until scheme finances improve; and mandatory clearance for certain corporate transactions.

Both of the above changes will need primary legislation, and the regulator will need significant extra resourcing, as their operation would be subject to the regulator’s consent.

For mandatory clearance, the regulator would need to respond very swiftly. It will also be exceptionally difficult to define the transactions subject to mandatory clearance. The regulator might prefer to be more involved informally, rather than having to operate a mandatory clearance system.

The government’s forthcoming green paper will indicate which recommendations it considers workable.

Hopefully, it will adopt a sensible approach, seizing the low hanging fruit and getting on with those recommendations rather than becoming bogged down in more grandiose reforms which may never get off the ground.

Clive Weber is a partner at law firm Wedlake Bell