Source · Select Committees · Work and Pensions Committee
Recommendation 9
9
Deferred
Paragraph: 99
Respond to the DB consolidation consultation and prioritise improving trustee regulation and governance standards.
Conclusion
TPR told us that scheme consolidation would help improve scheme governance, by reducing the number of small schemes. However, consolidation needs to be into a safe vehicle, which requires legislation. DWP consulted on DB consolidation in 2018 but has still not responded to this. Another long-standing question has been whether to require some form of qualification for at least some trustees. As a first step to improving governance, DWP should respond to its consultation on DB consolidation no later than the end of October 2023. It should then work with TPR as a priority to improve the regulation of trustees and standards of governance, as it has said it intends to do. Given the time it will take to consult on, legislate for, and Defined benefit pensions with Liability Driven nnvestments 49 implement measures to improve governance, DWP should consider whether the use of LDI could be restricted, for example, based on a test related to a trustee boards’ ability to understand and manage the risks involved.
Government response summary AI-generated
The government accepts the FPC's recommendation for TPR to incorporate financial stability considerations and details TPR's ongoing work, including setting up protocols with the BoE, reviewing its approach to external risks, and researching non-LDI trends. It does not address the specific deadlines or actions requested in the recommendation.
Summary of the government's response below — read the verbatim text to verify.
Paragraph Reference:
99
Government Response
Deferred
HM Government · verbatim extract
Deferred
DWP published the Government response to the consultation on Consolidation of Defined Benefit Pension Schemes on 11 July 2023,3 which was shortly followed by updated TPR guidance4 for Superfunds. DWP and HMT have undertaken a call for evidence on Pension trustee skills, capability and culture.5 This call for evidence considered trustee skills and capability as well as the role of advice (including that of investment consultants). The aim was to improve DWP and HMT’s understanding of these areas and potentially inform future policy. TPR expects all schemes to have robust controls in place around the use of LDI, as outlined in their guidance on Using Leveraged Liability-Driven Investment. As set out in response to Recommendation 2, TPR plan to monitor adherence with the guidance using a range of sources. Data from the FCA on buffers alongside feedback from leading investment consultancies and LDI managers strongly indicate that operational governance has improved. There is no direct means for TPR to restrict LDI use, as TPR does not set schemes investment strategies, including LDI structures. This is ultimately a decision for trustees and scheme sponsors. However, where TPR identifies failures of governance, it may take action, including, but not limited to, appointing an independent trustee, removing a trustee or taking other enforcement action.
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