TPR takes action against employer prioritising dividends and reveals 15% increase in use of AE powers

by Kim Kaveh

The Pensions Regulator has set out how it has used its powers over the first three months of the year in a bid to better protect scheme members.

The watchdog’s quarterly compliance and enforcement bulletin – unveiled today (16 May) – details information about cases and positive outcomes in the last quarter, both as a result of working with schemes to comply with the law and from using enforcement powers.

It includes an anonymous case study detailing how the regulator took action to ensure one DB scheme is now better funded after an upfront payment of £10m, a reduction in the recovery plan length from 13 to seven years, annual deficit recovery payments of £3.7m and a commitment to stop dividend payments for six years.

TPR said the case is an example of how it is taking a tougher approach to scheme funding and follows the watchdog’s annual funding statement in March, in which it warned DB scheme sponsors against prioritising shareholder returns over paying down their pension deficits.

It said that schemes should be treated fairly, funding targets should be strong, recovery plans should be as short as possible, and dividends should not be paid if an employer is unable to support its pension scheme.

TPR executive director of frontline regulation Nicola Parish said: “We have clearly set out our expectations for all workplace pension schemes and we will continue to intervene where we have concerns that a DB scheme is not being treated fairly by an employer.

“This is one of many examples of our work with trustees and employers to secure appropriate recovery plans and agree acceptable deficit recovery payments, better protecting the savers in those schemes.”

Auto-enrolment

According to the same bulletin, as a result of its work on automatic enrolment (AE), TPR reported a 15% increase in the use of powers against employers compared to the previous quarter.

The recent rise is due to an increasing number of employers reaching their three-year re-enrolment date and who must re-declare compliance to TPR, as well as the continued enforcement activity against employers after the first increase of combined minimum contributions in April 2018 to 5%, it said.

Total minimum contributions rose further to 8% in April this year, which could mean this figure could be shown to have risen again in the next quarterly bulletin.

Director of AE Darren Ryder said: “It is vital that employers meet their AE duties to ensure savers receive the income in retirement that they are entitled to.

“This becomes all the more important as minimum contribution levels rise and automatic enrolment matures, meaning people will be saving more towards their pensions.

“As our enforcement action shows, we will be tough on anyone who fails to meet their legal pension duties.”

Last year, TPR completed a review of its entire approach to regulation, setting out its mission to be “clearer, quicker and tougher” in order to drive up standards and improve its effectiveness for the schemes it regulates.

Latest examples of this include the regulator’s announcement yesterday that employers who breach their AE pension duties will be targeted with short-notice inspections. Last month, it announced plans to focus on reducing the number of poorly-run schemes as it seeks to improve standards across the board.