TPR’s proposed material detriment code ‘straying from stated objectives’ – Mercer

The Pensions Regulator’s draft code of practice is too vague in scope, and unless clarified will have a detrimental impact on the industry, says Mercer.

Mercer says the draft code appears to allow TPR to apply a contribution notice to almost any form of normal business activity where there is a defined benefit pension scheme which risks swamping the Pensions Regulator, and in turn increasing pension fund costs and restricting corporate transactions.
The draft Code specifies the circumstances in which TPR expects to issue a contribution notice under the extension to the moral hazard powers introduced by the Pensions Act 2008, under the “material detriment” test. Mercer says the code sketches out an extremely wide range of circumstances in which TPR may act, including corporate transactions and transfers of pension liabilities between employers. It cautions that in addition, the code proposes that TPR can issue a contribution notice where actions increase risk and potentially benefit the employer, which could include legitimate changes in the level of employer funding or investment strategy.
Mercer argues that the code should only impact on a small number of schemes where pension liabilities are being actively avoided or put at unacceptable risk. Specifically, Mercer is calling on TPR to rule out particular scenarios which TPR does not consider a threat, in order to enable normal business decisions to be made without the fear of subsequent regulatory intervention.
Stuart Benson, worldwide partner at Mercer says: “In its present form, this will prevent many employers contemplating a corporate transaction or restructuring, a transfer of pension liabilities, a contribution holiday or reduction in contributions, or even a change of funding or investment strategy, without seeking clearance.”
“This lack of certainty will increase still further the costs and risks falling on the vast majority of good employers trying to run a pension scheme,” he continued. “It is the last thing the pensions industry needs in the present financial climate.”