Regulator keeping 'careful eye' on watch list of 50 schemes

In a wide-ranging questioning session on June 26, members of the Work and Pensions Committee grilled Mr Counsell on the Arcadia pension deal and regulatory lessons from BHS and Carillion.

It has been a delicate and difficult case and it remains sensitive and is one of my very top priorities

Charles Counsell, The Pensions Regulator

The committee’s Nigel Mills MP highlighted that around 75 per cent of the UK’s 5,500 pension schemes are in deficit, and pressed Mr Counsell to disclose how many of these schemes the regulator is concerned about.

“How many of those are you worried about might need some sort of intervention, and how many do you think will get back on an even keel?” he asked.

Mr Counsell said: “In terms of the ones that we really worry about, we have two watch lists that we keep a very careful eye on – both a short-term and a long-term watch list.”  

There are about 50 schemes in total on these watch lists – 20 on one and 30 on the other, according to Mr Counsell.

The Railways Pension Scheme is one of the 50 schemes on the watch list.

In April, the select committee wrote to the regulator over what it called the “staggering, parlous state” of the £25.5bn scheme.

During Wednesday’s questioning, Mr Counsell said he hoped for there to be an outcome regarding the funding of the scheme “later this year”.

Arcadia remains top priority for TPR

But of the many issues that Mr Counsell says concern him, Arcadia is at the top of his list.

Earlier this month, all seven of Arcadia’s company voluntary arrangements were approved by the required majority of the retailer’s creditors. Its proposals needed the backing of at least 75 per cent of creditors. 

Mr Counsell told the committee: “It has been a delicate and difficult case and it remains sensitive and is one of my very top priorities, and there are 18,000 jobs at stake.”

He could not disclose the size of the Arcadia deficit for legal reasons, but said: “The latest valuation is due relatively soon. We have £210m in security over various assets. Subject to the CVA being successful, £100m goes into the scheme in cash and £165m in repair contributions, making a total of £475m.”

Frank Field, chairman of the committee, asked Mr Counsell whether he thought the trustees of the schemes are “up to the standard you’d like them to be”.

Mr Counsell was adamant that the trustees were indeed up to the standard and robust in their negotiations.

TPR to follow up 150 schemes on recovery plans

The committee also referred to tensions between deficits and dividends. Mr Counsell stressed that the regulator does not expect a weak employer that cannot support the scheme to be paying dividends.

He added: “We expect strong employers to put substantial payments in pensions to reduce the recovery time. We will follow up 150 schemes this year to ensure they are following our expectations in this regard.”

With regard to the Carillion Pension Scheme, Mr Counsell said the regulator came under pressure at the time from the CBI and the Treasury to bear in mind the health of the sponsoring of employer.

In response, Mr Field said: “Their hands are dirty in respect of the Carillion scheme.”

Mr Counsell replied: “Things have changed since Carillon and there are lessons to be learned.”

More generally, the regulator’s CEO stressed that there had been a change of tack, noting that “we are a very different regulator today”.

Mr Counsell stressed: “We will not hesitate to prosecute where we need to. We are currently prosecuting a case for fraud and money laundering. We have prosecuted 23 times in the past two years.”

Clarity on commercial consolidator funding

Another concern of the committee was DB superfunds, with Mr Counsell telling the committee that the regulator is “actively engaged with both of the two models and setting our expectations”. 

He added that he wanted clarity about their funding and clarity on the sustainability of their funding.

An exact regulatory framework for commercial consolidation has not yet been finalised, but there are still several deals set to go ahead this year.

Mr Counsell emphasised the need for proper regulation of superfunds, and stressed the need for trustees to look after the interests of their members.

“We expect them to be... really clear that the outcomes for their members are better by going into the superfund than staying where they are,” he said.

Mr Mills asked if a trustee could responsibly decide to transfer the scheme to a superfund that is not regulated.

“It would be a big call. We would look very hard at it," was Mr Counsel’s response. “In extremis, we have the power to put in place new trustees. We would expect them to notify us before doing it.”

The committee also warned of dangers of regulatory arbitrage. Nevertheless Mr Counsell noted that "superfunds in principle are a good thing”, with some pensioners having a better chance of getting their benefits depending on the superfund and its commercial arrangements.