From fighting pension scams to tackling Environmental, Social, and Governance, 2020 will be another fast-moving year of change full of positive opportunities and challenges we must all strive to meet.
Our role is to protect pension savers, and so I began the year by welcoming the prompt re-introduction of the Pension Schemes Bill. The Bill will give us the power to set and enforce clearer scheme funding standards in defined benefit (DB) pension schemes while providing early warning of potential problems.
Where problems arise, new criminal sanctions and civil fines will act as a strong deterrent against risky and reckless behaviour. We look forward to working with the Department for Work and Pensions (DWP) as the Bill progresses.
In March, we plan to consult on a revised DB funding code to introduce clearer funding standards, supported by the changes to legislation.
Many fast maturing DB schemes are paying out more money in benefits than they receive in contributions. The new code will focus on the importance of schemes taking a long-term view and managing risks appropriately.
Our proposal is for employers to follow a ‘fast track’ route or a more ‘bespoke’ approach, with the latter subject to greater regulatory scrutiny. Fast track will be a more prescribed route but with less regulatory scrutiny.
The flexibilities in our regime will continue to help trustees and employers balance the need to pay promised benefits against the employer’s ability to run and grow their business.
We will hold two formal consultations in 2020 – the first in March will focus on funding principles, to be followed later in the year on the detail of the new code. I urge everyone with an interest in DB pensions to share their views with us.
Looking at standards of trusteeship, we want to reduce the number of poorly-run schemes and explore ways to make the trustee model more effective, particularly in the defined contribution (DC) area. The model isn’t broken but it does need improving.
In February, we plan to publish our formal response to 2019’s consultation on the Future of Trusteeship and Governance. With 114 responses, this consultation proved to be our most popular ever and we will make several recommendations, including on trustee board diversity.
I’m pleased that feedback to the consultation shows there is clear support for our vision of all savers being in schemes that have excellent standards of governance that deliver good value. There is also support for our desire to consolidate underperforming small and micro DC schemes.
We think consolidation within the DC sector could be beneficial, especially among smaller schemes bringing about stronger governance, benefits of scale including access to better advice, lower charges and access to investment platforms.
Some of these factors might also apply to DB arrangements and achieved through DB master trusts and potentially DB superfunds, although the separation from the employer covenant in the case of DB superfunds deserves special consideration.
DB superfunds are potentially a force for good that could improve member outcomes and provide a secure place for pension saving. But without an authorisation regime there are some aspects that concern us. That’s why in 2020 we will continue to work closely with the DWP, the Pension Protection Fund (PPF) and other regulators on an authorisation and supervision framework to ensure members and the PPF are protected.
Sadly, pension scammers continue to wreck lives and we are determined to stop them in their tracks. We and our partner agencies are taking action. We are putting people behind bars for pensions fraud, pursuing illegal gains and shutting down scams where we find them. Education is our greatest weapon, which is why we have run the ScamSmart campaign in partnership with the Financial Conduct Authority (FCA) that urges people to be on their guard when receiving unexpected offers about their pension.
Later this year we will launch our long-term strategy to consider the future shape and needs of the pensions landscape. We will look at the profile of savers during the next two decades, what these savers will need and opportunities for TPR to make the most positive impact on their savings journey.
The Pensions Minister Guy Opperman and outgoing governor of the Bank of England Mark Carney, have both urged pension fund managers to wake up to climate change to stop their investments from becoming worthless. We agree.
Looking ahead to October, trustees will have to produce an implementation report outlining how they have acted on the investment policies in their Statement of Investment Principles. These statements are not mere tick box exercises – we expect trustees to provide us with details of how they have considered environmental and social governance.
TPR continues to be a clearer, quicker and tougher regulator. In 2020 we will continue to hold those to account who are not meeting their obligations towards pension savers.
The original article was published with Professional Pensions.
By Charles Counsell