8 Nov 2016: BHS ripple effect
Parliament’s investigation into the well-publicised plight of BHS and its pension scheme is likely to cause ripples throughout the pensions industry over 2017. 

The select committees over the Summer grilled not only Sir Philip Green, the other corporate players and the pension trustees, but also the Pensions Regulator itself.  TPR drew criticism from the committees for its efficacy in handling the BHS investigation, accepting that TPR derives its powers from Parliament in the first place.  There were subsequently calls for TPR to be granted stronger powers in dealing with sponsors.

What can we expect to see in 2017 therefore?

We have already seen an increase in covenant interest from existing and new trustee clients, wary of the ‘BHS effect’ and not wanting to have to defend their funding decisions in a similar manner to the BHS trustees.  While it seems unlikely that most trustees will be subject to the rigours of a select committee there is heightened awareness of the need to behave robustly.  Trustees asking their covenant adviser to double-check their decision-making in the context of what their employer can reasonably afford can provide significant additional comfort.

As for TPR, despite BHS it seems unlikely in our view that TPR will be granted sweeping new powers, particularly as the last tweak to its powers was arguably a softening of its stance with a new statutory objective announced in 2013 to allow for employers’ sustainable growth plans.   The economy is perhaps still too fragile, particularly in light of the EU Referendum result, to bear strong new enforcement powers for TPR.

Nevertheless recent comments by TPR Executive Director, Andrew Warwick-Thompson, point towards a strengthening in the Regulator’s approach when dealing with sponsors.  In particular we are told to expect the Regulator to move far earlier from education and enablement to enforcement.

In short, 2017 is perhaps going to be a period of heightened sensitivity from the Regulator.  For valuations agreed over the next 12 to 18 months trustees and employers should not be surprised to get more pushback from TPR where it feels sponsors could do more.

As for the BHS Scheme itself, the recent issuing of Warning Notices to Sir Philip and others could potentially precipitate a deal before Christmas.

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