TPR’s “Clearer, Quicker, Tougher” approach in practice - KPMG United Kingdom
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TPR’s 'Clearer, Quicker, Tougher' approach in practice

TPR’s 'Clearer, Quicker, Tougher' approach in practice

More than a year has passed since the Pensions Regulator (TPR) revised its regulatory approach for defined benefit schemes, we discuss how TPR’s approach has been evolving.

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Director and Pensions Actuary

KPMG in the UK

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The Pensions Regulator (TPR) launched its revised regulatory approach for defined benefit schemes towards the end of 2017. This came at a time when TPR was facing increased political scrutiny and criticism as a result of a number of high profile pension cases. TPR announced it was replacing its previous 'educate, enable, enforce' approach with a new 'clearer, quicker, tougher' mantra. Now that more than a year has passed, we discuss how TPR’s approach has been evolving.

Clearer

TPR’s achievements over the year:

  • Explicit and earlier enforcement timescales were set out on late valuation submissions, information requests and 'failure to agree' valuations (with the resultant issuing of warning notices).
  • Conflicts of interest (including the removal/appointment of trustees) were addressed more robustly.
  • The implementation of a small scheme engagement strategy that compares outcomes of small scheme valuations where TPR did and did not set out areas of concerns at the outset.

TPR has certainly become more directional in its interactions with trustees and sponsors. It is increasingly taking an active position, being willing to identify specific areas of concern and explicit in the changes they would like to see. Previously they were much more circumspect about the detail.  

Quicker

TPR’s achievements over the year:

  • Engaged with trustees via a campaign style approach, issuing generic letters across certain sectors or with common scheme characteristics which aimed at highlighting particular areas of concern.  
  • Roll out of one-to-one engagement with the largest Defined Benefits and Defined Contributions schemes in the UK to ensure it has a good understanding of how these schemes are being managed and to help facilitate early intervention, if required. This one-to-one engagement included areas such as administration, governance, and cyber, as well as the more traditional covenant, investment and funding risks.

The broad brush nature of the campaign approach allows TPR to quickly engage with a large number of schemes, one-to-one engagement has only just begun and we wait to see if it will allow TPR to be more reactive to emerging issues within these schemes. However, while TPR has been clearer about where it will use its existing powers, they are still difficult and time-consuming to enforce. The new powers proposed under the DWP’s white paper may provide the tools to speed things up. 

Tougher

TPR’s achievements over the year:

  • As set out in its latest annual funding statements, the main area of focus has been to engage with schemes which they believe are not getting their fair share in sponsor contributions.
  • There are numerous examples where TPR has intervened to push for greater prudence in funding assumptions, higher deficit payments (including pushing back on affordability arguments) and more favourable contingency funding arrangements (e.g. higher levels of dividend matching, stronger guarantees).
  • The recent Section 89 report, setting out TPR’s engagement with Southern Water, is a case study that illustrates their tougher approach and willingness to look for mitigation where it views previous detrimental treatment took place.

Schemes with long recovery plans and where dividends are multiples of deficit payments should expect challenges from TPR. We expect the new funding code of practice will be TPR’s key tool to drive improved funding levels and behaviours.

Overall: Making progress but still with work to do

It is clear that TPR’s rhetoric is backed up in practice, with a range of new engagement approaches being adopted. There are however a number of practical challenges that remain for TPR to address, including the consistency of approach between different case teams and wider commercial discussions around the 'right' balance of allocating resources to various sponsor stakeholders. TPR also has to set a regime and marshal its limited resources to be able to provide the right intervention across the full range of pension schemes under its remit.

We expect TPR’s new funding code and enhanced enforcement powers will strengthen TPR’s position. We also hope TPR will be emboldened to take more robust positions with trustees and sponsors where it believes schemes are not being appropriately treated. As a result, the 'clearer, quicker, tougher' changes we have observed so far will continue to evolve.  

The cost to trustees/sponsors of dealing with TPR’s engagement is increasing and we expect it will be a net benefit to take steps to address any areas of non-compliance sooner rather than later.

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