Pension a promise, not a commodity says O’Brien

Non-insured bulk-buyouts are a positive development but pose new risks requiring new regulations, says pensions minister Mike O’Brien.

O’Brien told an NAPF conference yesterday that new uninsured structures in the defined benefit sector were a ‘welcome addition to the rich tapestry of the pensions market’. But he also stressed that companies could not get away from their pension promises.
The Government plans to increase powers requiring employers to provide contributions to a pension scheme if their actions could threaten the security of members’ pensions. The new regulations are aimed at new corporate structures for managing pension schemes that do not rely on insured bulk-buyouts.
The changes would give the Pensions Regulator stronger powers to reduce the risk to members’ interests by scheme changes or corporate transactions. They would apply to an employer or their associates, including investors in the employer who might seek to profit from the scheme. They relate to clarity in relation to the rules surrounding contribution notices and the tests that trigger financial support directions.
There will be an eight week consultation on these changes.
O’Brien said: “It is incumbent on us all to work to provide trust in the system. A pension should equal a promise, not just a commodity to be bought and sold regardless of the consequences. It is a promise that should be fulfilled. Because to lose your pension is to suffer an injustice.
“I say to trustees, look carefully at the security of member benefits, and involve the Regulator early if you have any concerns because I am concerned that the intrinsic risks of these new business models present a real downside.
“Suppose investments fail to perform as expected. If the link between the scheme and the employer has been severed, without adequate capital being put in place to back the risks of the scheme, then there is no backstop to ensure that benefits will be paid as promised.
“In a worst case scenario, the provider could be driven into insolvency and the scheme could enter the PPF with a funding deficit.”