Biggest shake-up yet for Pensions Regulator

MPs may demand sweeping new powers as boss faces fresh grilling

THE Pensions Regulator is facing its biggest ever shake-up as MPs will tomorrow launch a sweeping probe into its powers and whether it is currently fit for purpose.

The inquiry into the Regulator by the Work and Pensions Committee will consider whether it should be given new teeth to block takeovers, The Mail on Sunday can reveal.

Committee chair Frank Field MP has indicated he favours such new powers but is also set to turn the spotlight on the Regulator’s senior officers, calling them back for a fresh grilling in the wake of the BHS scandal.

Last night, Field told The Mail on Sunday: ‘Clearly, we’ve already got views forming about how the Regulator has performed regarding Sir Philip Green and the BHS pension scheme.

‘We want to see how adequate the existing machinery is, the timescale over which they should operate and whether the right staff are in place to implement the policy.’

Field added that the option to block a takeover deal could be made available to the Regulator and would have ‘at the very minimum put a hold on what was happened at BHS’.

Pensions Regulator chief Lesley Titcomb will be called to appear again before MPs – after an uneasy hearing over BHS in May.

A parliamentary source said: ‘What came out of the very first BHS hearing was the question: “Where was the Pensions Regulator?” To say the chairman was unimpressed with the Regulator’s performance in front of the committee is an understatement.’

The risks of underfunded pension schemes have been also thrown into fresh relief by last week’s interest rate cut, which experts said would blow a further hole in company pension schemes.

Lower interest rates cut the income that pension funds can earn for members on retirement. Leading consultancy Hymans Robertson said the 0.25percentage point cut would increase the national pensions deficit by £70 billion, making a total shortfall in all UK company schemes of £945billion.

The inquiry will review the entire statutory framework of the British pensions system. But strengthening the Regulator is seen by MPs as a

at its relationship with the Regulator. Field said his resolve had been strengthened by comments from the Prime Minister, who used her first speech in office to warn of ‘a form of capitalism she did not want’.

‘The committee will be working under the assumption that the new regime is very different from what has gone before – that the Prime Minister is serious when she makes statements and will put the same emphasis on outcomes as New Labour put on spin,’ he said.

Field has repeatedly clashed with former BHS owner Sir Philip Green over the state of the £571million BHS pension deficit, which he has promised to ‘sort’. Green sold the stores group to Dominic Chappell last year. Less than 12 months later the group collapsed leaving the huge shortfall in its pension fund. The MP met the Serious Fraud Office on Friday and provided it with unpublished documents relating to the company.

Other pension schemes linked to major UK businesses are also under the spotlight, including the Tata steelworkers’ pension fund and there are concerns about blue chip pension deficits.

THIS week has seen more misery piled onto savers, pensioners and pension funds as the Bank of England cut rates again and expanded its moneyprinting experiment known as ‘Quantitative Easing’.

Savers have been hammered again and anyone hoping to buy a pension will get less.

The usual rules have been turned on their head. Policy is penalising savers while bending over backwards to boost borrowing. Surely a modern economy with an ageing population should be encouraging people to save.

Pensioners relying on their savings to deliver a decent income are earning virtually no return. More and more people are deciding to give up on banks and just put their money under the mattress.

The authorities argue that falling rates are offset by better investment returns elsewhere, but that is not how things work for most of us. Ordinary savers cannot afford to take risks with their hard-earned savings and just want to keep their money in a bank account. Pushing up the prices of riskier assets like stocks and shares may help the big institutions or wealthy investors, but ordinary savers lose out.

Middle England is being squeezed. It is time for a new approach. I understand the Bank of England faces a difficult dilemma, wanting to stimulate the economy.

But it is also important to recognise that lower interest rates can have negative consequences for growth too. For example, savers may have to reduce their spending as rates decline.

But the consequences for pension funds are even more problematic. Companies with final salary-type pension schemes are struggling with ever-rising deficits.

As long-term interest rates go lower, the cost of providing pensions goes up. Lower interest rates mean you cannot rely on earning so much on the funds invested, so you need to put in more money today to pay for future pensions. If you will earn one per cent a year on your assets, you will need a much larger fund than if you can earn five per cent a year.

Eleven million people in the private sector belong to traditional salary-related pension schemes.

Millions more are in public sector schemes underwritten by taxpayers. The problem is that the impact of low rates and more Quantitative Easing (QE) in lowering bond yields will increase pension liabilities by more than the increase in asset values, causing much bigger deficits.

These are now approaching a gargantuan £1trillion. This damaging side effect of low interest rates has not been adequately addressed.

It is time to be more creative. We need to find better ways to boost growth than creating billions of pounds of new money for the Bank of England to buy more Government bonds.

QE relies on the institutions who sell Government bonds to the Bank of England, then depositing that money in banks who then invest and so supposedly benefit the economy. But this transmission mechanism is too indirect. We should try a more direct approach.

We should be encouraging pension funds to invest in infrastructure or social housing, providing better returns and still helping the economy.

The Government should also consider issuing special bonds for pension funds to help them earn better returns.

They could also consider issuing savers’ or pensioner bonds, along the lines of the now-withdrawn over-65s bonds.

Ultimately, just handing out cash to people directly – dubbed ‘helicopter money’ by the economists – could better achieve the growth objective than just continually cutting rates. Rate Cut Special Report –

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