Defined Benefit Pension Scheme Reform

28 / 02 / 2017

The BHS Scheme saga rumbles on. Meanwhile, the Department for Work and Pensions has published a ‘Green Paper’ for consultation on reform of defined benefit pensions, entitled ‘Security and Sustainability in Defined Benefit Pension Schemes’.

The Green Paper follows on from the Parliamentary Work and Pensions Committee’s publication in December 2016 of 15 carefully considered and well-put recommendations for changes to the defined benefit regime. In his recent Pensions Expert article, Are the select committee’s DB recommendations workable? , Clive Weber discussed which of the Select Committee’s recommendations were workable (e.g. shortening valuation periods and streamlining tPR’s anti-avoidance powers) and which might be pipedreams (consolidation of small schemes and mandatory clearance for corporate transactions). The Select Committee hoped that the Government would take its recommendations forward and develop them further, picking up on the growing impetus for change within the pensions industry and wider public.

Disappointingly, and in stark contrast to the Select Committee’s punchy report, the tone of the Green Paper is overwhelmingly non-committal. The Paper reflects most of the Select Committee’s recommendations as possible options for change, but at the same time notes that “there is no immediate crisis in funding for the DB system as a whole” and “the view of virtually all stakeholders is that the DB regime is satisfactory”. Not all would agree with this conclusion.

The Government has jumped off the fence on the issue of small scheme consolidation, stating that a Government-run ‘Superfund’ consolidation vehicle would not be appropriate but voluntary consolidation would be desirable. In most other areas, including: changes to trivial commutation rules; increasing tPR’s intervention powers; and changes to scheme indexation rules and deficit recovery plans for stressed schemes, the paper sets out the many various problems with introducing such changes and recommends a cautious approach.

The (uninspiring) purpose of the Green Paper is, as stated in its introduction, to “review the various options” and “encourage an informed debate on what, if anything, the government may need to do”. Whilst this may be inevitable given the Government’s publication of a ‘Green Paper’ rather than taking a more proactive approach, what is clear is that there is a very long legislative trail ahead before any of the ideas for possible reform develop into concrete results.

The consultation is open for response until 14 May 2017.