Sustainable growth

A new objective to “minimise any adverse impact on the sustainable growth of an employer” has been given to the Pensions Regulator under the Pensions Act 2014. The intention is to allow businesses facing significant direct benefit (DB) scheme deficit funding requirements more flexibility to continue to invest in company growth, while ensuring members’ benefits are protected.

But when the Regulator first attempted to update the Funding defined benefits Code of Practice at the end of 2013, it was criticised jointly by the TUC and CBI employers’ organisation for the way the new objective was interpreted. They said its approach was too rigid given that “artificially high costs are damaging the employer’s growth and therefore the long term interests of employees’ pensions”. It would lead to “excessively prudent funding of schemes” when less prescriptive instructions and greater flexibility would encourage cooperation between businesses and trustees, and allow individual solutions to be found for each pension scheme.

However, the debate is not over. Responding to the consultation, the Regulator insisted that it is for trustees to ensure that scheme benefits can be paid as they fall due. Nevertheless, their ability to meet these objectives “will be greatly enhanced if the employer supporting the scheme remains successful”.