Something must be done! So says the work and Pensions Select Committee chaired by Frank Field MP in the wake of high profile cases like Carillion and BHS. Knee jerk reactions in Parliament rarely lead to the best laws and I suspect that this habitual problem will only be exacerbated with laws made while everyone is distracted by Brexit. What are the chances of the Government actually improving the pension’s landscape?
Well, firstly, there are some changes that can be made which are at least harmless in principle and may even do some good. It’s hard to find a compelling reason to argue against strengthening penalties for wilful or grossly reckless behaviour by trustees and employers, for example. On the other hand it’s only ever been a tiny minority of schemes that have suffered from such behaviour so it’s unlikely that making it a criminal offence will improve things much. There’s also the likely unintended consequence that some diligent trustees will be prompted to err too much on the side of caution rather than run any risk at all of being accused of recklessness.
The problem is that the Select Committee is extrapolating to the wrong conclusion. The Pensions Regulator had been involved with Carillion before it collapsed, but had still not managed to avoid the current problems arising for its pension schemes. The dilemma was though that Carillion was already struggling and the Trustees and the Regulator were in an invidious position. They could have encouraged (or even tried to force) the employer to pay higher contributions at the expense of dividends. If so, that could well have driven investors away and led to a collapse sooner. With the benefit of hindsight the Committee is convinced that the decisions made were wrong, but who really knows what would have happened otherwise. In any event, the problems at Carillion were with the company itself and the pension scheme was just collateral damage. Companies will always be at the risk of going bust and it’s unrealistic to insist on full solvency funding for every scheme at all times just in case it happens to be one of the unlucky ones. Perhaps we just need to be honest about the fact that sometimes bad things happen and it’s not always possible to completely protect people.
Secondly, I happen to have liked the practical way that the Regulator worked in the good old days. They encouraged trustees to do the right thing and explained when they were getting it wrong, only using their formal powers as a last resort. Sometimes they got it wrong but mostly the Regulator found a good balance in a difficult area. Now that something “must be done”, the Regulator has used its enforcement powers in 22% more cases in the second quarter of 2018 than in the first quarter. Have there really been 8,000 more cases where the Regulator needed to step in or are we just seeing a reaction to the unfair criticism for past performance?
Finally, there is definitely a bright side. The Regulator has historically been slightly nervous about using some of its existing powers even when they are clearly justified, possibly due to a fear of being over-ruled later. In the latest quarterly report, the Regulator has used its information gathering powers 31 times, taken action against 25 schemes for failing to submit an annual return and appointed 162 trustees to protect member benefits. The Regulator also exercised powers for the first time ever under the Proceeds of Crime Act 2002, Section 10 of the Pensions Act 1995 and the Computer Misuse Act 1990 (which by my reckoning has been in force for 28 years so far). That certainly seems to support the claim that the Regulator already had more powers if it wanted to use them!
In particular, the Section 10 fine of £25,000 for the Trustees who had failed to produce two actuarial valuations is a welcome wake-up call to the handful of trustees and employers who behave badly. However, I still hope (and expect) that the Regulator will limit the toughest stance to those that deserve it and continue to support hard-working and dedicated trustees to do their best – without leaving them terrified of being sent to jail or the poor house if they ever make an honest mistake or things go wrong for their scheme.