Out-Law News 2 min. read
10 Feb 2017, 3:14 pm
The authors have called for a deregulation exercise to remove or repeal unnecessary rules, ahead of a consolidation of the existing rules governing defined benefit (DB) pension schemes. "Incessant tinkering" by the government and regulators is causing "immense damage" to people's pension expectations according to the report (40-page / 676KB PDF), which was jointly prepared by Pinsent Mason, the law firm behind Out-Law.com, information service provider Pendragon and the Pensions Institute, which is part of the Cass Business School.
"The present system is considered by most to be dysfunctional, leading to confusion, expense and a reduction in provision by employers," said pensions and long-term savings expert Carolyn Saunders of Pinsent Masons.
"Whilst auto-enrolment is making some headway, for most of the population there is a reduction in the amount being set aside for retirement at a time when the population is aging and the savings ratios should be higher. Regulation may not be the sole reason for the decline, but it seems to be a major contributory factor," she said.
The percentage of DB schemes open to new members has fallen dramatically over the last 10 to 15 years, driven by a combination of increasing life expectancy, poor investment results and stricter regulation pushing up the costs of funding them. At the same time, the volume of rules applicable to these schemes has increased to around 160,000 pages, including legislation, tax codes and case law, according to the report. DB schemes promise a set level of pension once an employee reaches retirement age, no matter what happens to the value of the underlying investment.
The government is due to publish a 'green paper' on pensions regulation, including DB scheme funding requirements, shortly. It is expected to use this paper to respond to the recommendations of MPs on the Work and Pensions Committee in their report on pension scheme funding, published late last year. The committee recommended that the government consult on tougher powers for the Pensions Regulator (TPR) to intervene on scheme underfunding by sponsoring employers and allow for easier consolidation of underperforming schemes, funded by way of a new statutory 'aggregator' fund.
The committee also recommended that businesses be required to obtain clearance from TPR for some corporate transactions "that could be materially detrimental to the funding position of a DB scheme". Its report was prompted in part by the recent high-profile collapse of retailer BHS, at a point when its pension scheme was £571 million in deficit, and the reported financial difficulties of the British Steel Pension Scheme.
The new report, however, warns that the "irresistible political pressures" for further regulation must be "firmly resisted" for the benefit of scheme members, as well as employers. There were over 2,000 new pages of laws in 2016 which, "together with the stream of consultations on new ones, has become a burden too heavy to bear for most", according to the report.
Instead, lawmakers and regulators should review existing rules and be able to provide evidence to explain why these are inadequate before proposing new ones. The report raises the possibility of a 'one in, two out' regulatory review policy which would require the removal of two existing regulations when proposing new ones, as has been adopted by other government departments.
The government should develop and issues a "holistic statement of its pensions policies" rather than issuing additional 'ad hoc' proposals, and this should extend to tax, consumer protection and the scope of regulation, according to the report. The existing regulations should also be consolidated and simplified into a single 'legal pensions code', which "the majority of those concerned could easily understand", according to the report.