Pensions experts have identified a shopping list of key areas where the Government needs to focus its energies if it is to meet its Red Tape Challenge and reinvigorate workplace pensions.
These include the overly prescriptive rules on the type of pensions employers need to offer, and how employers communicate with the members of their pension schemes.
Responding to the Government’s “Pensions Spotlight”, the National Association of Pension Funds (NAPF) called on the Government to seize the moment by streamlining regulations. It added that the Government needs to ensure that the regulatory regime for pensions protects members’ interests while not imposing unnecessary burdens on employers who are providing good quality pensions to their workforce.
Joanne Segars, NAPF Chief Executive, said:
“We welcome that the Government is taking a long hard look at pensions regulation. This is a positive first step in its wider commitment to reinvigorate workplace pensions.
“We need a regulatory system that protects members’ interests, whilst also supporting good quality workplace pensions.
“Getting a positive outcome from this red tape challenge would pave the way in opening up a spectrum of options for better sharing of risk between employers, individuals and the state, very much along the lines of the Pensions Minister’s ‘defined ambition’ approach.
“For too long successive Governments have applied layer upon layer of regulation on pensions and we now have one of the most complex systems in the world. We need to rethink if we are to have a system that works for members, employers and schemes, and provides good quality workplace pensions to future retirees.
“However, any benefits from the Government’s Red Tape Challenge could be undermined if the Government presses ahead with its plans to equalise Guaranteed Minimum Pensions (GMP) at a cost of £13bn. The Government needs to explain its case for GMP equalisation and publish its legal advice.”
According to the NAPF, the key areas of pensions regulations within the scope of the Red Tape Challenge where the Government could take action, are:
- Inflation indexation: the costs of running defined benefit pensions have escalated over the last 3 decades as legislation has hard wired the benefits that must be provided by employers. Going forward, the Government should consider removing the statutory requirement on indexation of pensions for newly accrued rights, alongside other statutory benefits. This would help many employers move to a more sustainable ‘Core DB’ model.
- Section 67 and scheme modifications: this restricts the ability of trustees and employers to make changes to their scheme and often acts as a barrier to making improvements to the scheme that would have only a marginal impact on individual members. It sets a very high technical hurdle and means that trustees become overly focussed on process rather than making decisions to the benefit of scheme members overall. Removing or modifying Section 67 could free up trustees to make changes for the greater good.
- Section 75 and employer debt: the employer debt regulations that can be triggered by restructuring even where no value has left the corporate group could be simplified by relying on The Pensions Regulator’s (TPR) powers to intervene rather than crystallising the debt.
- Interactions with TPR: the burdens around compliance and governance were felt to be disproportionate, particularly for smaller schemes, with particular issues raised around the time and effort spent on record keeping, and around data exchange and appeals processes for multi-employer schemes.
- Disclosure and Communications: the current requirements were described as overly prescriptive and the information provided complex and unhelpful for members. NAPF members argued that more focus should be placed on the principles of what should be provided and ‘trusting the trustee’ or the pension scheme manager to communicate with their members.
The NAPF’s response to the Government’s Pensions Spotlight is based on a Call for Evidence the NAPF ran with fund and business members from February to March, alongside discussions at NAPF working groups, forums and member visits.
