BSA investigates the Future of Pensions

25 Sep 2019

John Hanratty, Head of Pensions North at CMS CMNO, and Chair of the BSA Pensions Group facilitated an insightful and constructive roundtable on the Future of Pensions in July 2019.

The BSA invited two guest speakers, Fiona Frobisher, Head of Policy, The Pensions Regulator (TPR) and Richard Giles, Head of Strategic Partnerships, The Pensions Trust (TPT) to provide more detail on the obligations of pension schemes for independent providers.

Fiona discussed how TPR intends to set clearer expectations for employers by updating its code of practice for funding defined benefit (DB) pensions. There are 3 key objectives which underpin its work: better trustee focus on risk management and long-term strategic goals; greater transparency and accountability around trustee decision making; and more effective and efficient regulation of DB pensions. TPR will develop a framework for more objective and transparent use of the flexibilities within the system, rather than abolish scheme-specific funding.

TPT undertook a review of the future of DB pensions approximately 3 years ago and found they are ineffective for a variety of stakeholders including: some sponsors, trustees, regulators and government. DB pension schemes are becoming more expensive to fund and it is much harder to find trustees who are willing to act as trustees of schemes because complexity in law and regulation is increasing; they are expected to develop their knowledge on complex issues whilst keeping pace with increasing regulation. The UK government is concerned that these issues could lead to more pressure on the state and poor outcomes for pension scheme members.

To resolve these issues, the government has encouraged employers to implement “DB consolidation” which intends to lower administrative and investment costs, improve governance and provide easier access to expertise. Pension Scheme Master Trusts have emerged as an outcome from DB consolidation, a Master Trust is a multi-employer occupational scheme where each employer has its own section within the master arrangement. Richard argued this is the best solution for trustees and sponsors because master trusts provide robust governance and professionalism, each employer has its own section (with assets and liabilities ringfenced), members’ benefits are unchanged, and the section retains access to the Pension Protection Fund if the employer becomes insolvent.

Richard also pointed out that employer covenants can change very quickly and advised attendees to have appointed covenant experts to monitor each arrangement. Fiona added that a covenant review should consider what needs to be monitored on an on-going basis as part of good governance.

Discussion covered the future role of pension trustees. An attendee pointed out their company had to encourage employees to take on the role because few had come forward to express an interest in becoming a trustee. They felt this was detrimental to pension scheme protection; a trustee should be enthusiastic about their role, as they are required to spend time to work out the needs of the membership. It was suggested that this may be because pension schemes have matured, there are less active members and it is more difficult to identify the role of trustees. Fiona added that employers should allow trustees to develop their positions on pension schemes and suggested part-time trustees could help to fill this void.

The BSA is grateful to CMS for hosting and chairing this session.

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