A practical guide on The Pensions Regulator’s statement | KPMG | UK

A practical guide on The Pensions Regulator’s statement

A practical guide on The Pensions Regulator’s statement

We outline simple practical steps that corporate and trustee boards can take to avoid unnecessary scrutiny and cost.

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A practical guide for Boards on the Pensions Regulator’s statement - future sign

The Pensions Regulator (TPR) 2017 statement marked a stark change in rhetoric and intent. TPR has promised more intervention and not just on “high priority” cases. We are already seeing an increase in requests for information across the market, including Section 72 notices and a potential increase in threats of individual fines. Interventions can be very expensive with high adviser costs and management time. We outline what simple practical steps corporates and trustee boards can take to avoid unnecessary scrutiny and cost.

Be prepared!

“Why have we been chosen?” is often the first question people ask. It is unlikely TPR will share their selection and segmentation criteria so it’s all about being prepared. How might you review your current approach and what changes might be needed?

  • Documentation – can you lay your hands on all the documentation? Do you have notes of company and trustee conversations where key decisions were made? Are the phone notes and meeting minutes comprehensive?
  • Audit trail – can you set out the audit trail, are any delays justified and do the timeframes reflect the plan and final outcome?
  • Policies – will potential conflicts alarm TPR? Were these identified, addressed and a protocol put in place at an early stage? Do you have an integrated risk management framework?
  • Advice – was appropriate advice received across the key areas of funding – covenant, investment and actuarial? Was it followed? Do you have a long-term plan and were contingency plans considered.
  • Working together – company and trustees should work together to respond jointly to TPR as this will give clarity and save time and effort.

A lack of forward planning and an inability to respond accurately and comprehensively may lead you and your board down a path that could have been avoided.

Intervention more often and more quickly

TPR began releasing their annual funding statement in 2012 and since then the six further iterations have continued to reflect changes in the pension landscape. The latest statement has been issued in the shadow of high profile cases and in a market of persisting low interest rates and where deficits prevail. This statement clearly marks a change in approach with one of the main priorities to intervene more often and more quickly where defined benefit schemes are underfunded or avoidance is suspected.

Better targeted

To help achieve this, TPR has promised more proactive and better targeted interventions using the data they have collected. While TPR is increasing its resources, challenges will still remain in making sure they identify the right cases. Inevitably, some schemes will find themselves under unnecessary scrutiny. While TPR may have more resource, employers and trustees may not have matching resource to deal with such matters if they become protracted.

It’s already started

We have already started to see this change of approach, with communications requesting information for TPR (“Section 72 notices”) becoming more frequent and targeted. Some are questioning why they have been targeted and how the segmentation works. It will not be in TPR’s interest to divulge too much on this, but the manner of a response to a request or engagement will be telling.

Reacting to any engagement from TPR absorbs trustee and company time and is likely to be a matter for the agenda of respective boards.

Time consuming

Consider two scenarios. In the first, TPR seeks information to evidence how the valuation outcome was arrived at. The paperwork on the file fully supported the dialogue that took place over what was an inevitably protracted negotiation. The Trustees were able to demonstrate that they had recognised the downside risks which were addressed through a contingency plan. This included additional contributions payable from the company depending on company performance and scheme investment returns. Combined with other information provided, TPR’s questions were answered promptly and further time and cost was minimised.

In the second scenario there is the same situation; the TPR again seeks information to evidence how the valuation outcome was arrived at. The company and trustees were unable to respond quickly and efficiently to TPR because the paper trail was hard to follow, they worked independently and an oversight meant the contingency plan was not shared in the immediate response. The weak response led to further questions and concerns from TPR which made the overall process longer, more protracted and much more expensive. The company and trustee board unnecessarily had to spend time dealing with the response distracting them from other matters at hand.

Being prepared, planning ahead and seeking the right advice will help avoid your board being burdened with a potentially unnecessary intervention from TPR.

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