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
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.
Paragraph Reference:
99
Government Response
Deferred
HM Government
Deferred
TPR, the FCA and BoE all have a role to play in monitoring risks and feeding into the FPC’s assessment of systemic risks to the UK financial system. The Government accepts the FPC’s recommendation that TPR should incorporate financial stability considerations in its decision making and balance them with its objectives as a pensions regulator. As suggested by the Committee, enabling TPR to be a source of key information through data collection is a sensible means of achieving this. Government wants TPR to be more connected within the financial stability ecosystem and bringing the added value of TPR’s pensions expertise without duplicating capability held by other regulators. TPR is looking to set up protocols with the BoE to ensure, as a pensions regulator, they are working cohesively with the wider financial regulatory system. Collaborative working is already underway – in addition to monitoring LDI resilience as set out above, TPR and the FCA are also supporting the BoE with their System Wide Exploratory Scenario exercise. As a direct result of the LDI episode, TPR is in the process of reviewing its approach to the capture, ownership, assessment and management of external risks. This includes expanding its work to consider not only risks to savers and their strategy, but also the risk that the operation of the pension system destabilises the financial system. TPR is currently researching non-LDI trends within pensions (and especially within the gilt and insurance markets) that might lead to concentration risk and have wider financial stability risk implications. TPR are in conjunction with DWP also exploring what additional skills and capabilities they may require to embed the consideration of financial stability in their work.