R3’s submission to the government’s green paper on defined-benefit pension schemes

10 May 2017

The government published a green paper on defined-benefit (DB) pension schemes in February to seek views on the current landscape and potential options for reform. The three month consultation comes at a time of significant and press and parliamentary scrutiny of occupational DB pension schemes with high profile cases such as BHS regularly hitting the headlines for over a year.

R3’s submission (here) focuses on the issues which are relevant to the insolvency and restructuring profession, specifically its engagement with The Pensions Regulator (tPR). Our members play a key role in resolving the future of a financially distressed or insolvent company’s DB pension scheme, and may approach tPR about a scheme where necessary. When appointed as an office holder in an insolvency procedure, it is the role of an insolvency practitioner to inform tPR whether an insolvent company has a pension scheme, including a DB scheme, as well as to realise the assets of the company and to distribute any realisations to creditors in accordance with the government’s ‘order of priority’ for repayments, under which a DB pension scheme deficit ranks alongside other unsecured creditors.

In summary:

• R3 believes tPR has sufficient powers to fulfil its existing obligations and any further powers contemplated by the government should be carefully considered to ensure they do not harm legitimate business activity;

• We recommend a review of the timeliness and commerciality of tPR’s engagement with financially distressed or insolvent companies, and its approach to coming to an agreement with a company or its advising insolvency practitioner. A faster or more flexible approach to agreements could increase the chances of successful business rescues and improve the returns available to creditors, including beneficiaries of the DB pension scheme;

• The test which determines whether tPR will engage with a company in distress (i.e. one judged to be at 'inevitable risk of insolvency within the next twelve months') should be amended to 'a real prospect of insolvency in the foreseeable future';

• A system of proactive clearance (question 5b of the green paper) is unnecessary and would be detrimental to legitimate business activity;

• DB schemes should be revalued more frequently, using an approach to valuations that allows for the effects of short-term fluctuations in schemes’ values;

• More support should be given to pension fund trustees to ensure that they have the information and skills needed to effectively scrutinise the scheme for which they are responsible. The government should also give consideration to ways to increase the number of trustees who are independent from the company whose scheme they are responsible for.

R3 looks forward to working with the government and tPR over the coming months.