Another successful Law Debenture Debate
15 May 2018
Last night we held the 13th Law Debenture Debate and, as always, heard some great points from both sides of our expert panel. The evening was ably chaired by Baroness Jeannie Drake who kept excellent order, making firm use of her gavel just once.
Nearly 200 guests joined us to hear the arguments for and against the highly topical motion:
“In the light of recent corporate failures, this House believes the duties of a company towards its pension scheme are in need of fundamental reform"
This prompted the speakers to consider two key strands: are these duties in need of reform, and if so is that fundamental reform or something less drastic?
Arguing for the motion were Gregg McClymont of Aberdeen Standard Investments and Caroline Kurup from CMS. Both highlighted that ensuring public confidence in pensions is key. They asserted that the average member of the public doesn’t make a distinction between defined benefit (DB) and defined contribution (DC) schemes. When they see a corporate failure such as BHS or Carillion, individuals lose confidence in pensions as a whole, which is something to be avoided at all costs.
Our promoters of the motion took the position that reform is needed and that the approach taken previously through the 1995 and 2004 Pensions Acts has not worked sufficiently. They offered various proposals for what reform could look like. These included the tethering of dividend payments to pension contributions where the sponsor’s DB scheme is in deficit, through to appointing an independent trustee to the board of every DB pension scheme.
Speaking against the motion were Tim Cox from Linklaters and Victoria Tillbrook from PricewaterhouseCoopers. They argued that in fact there are very few corporate failures, and fundamentally reforming company duties with a ‘one size fits all’ approach wouldn’t change outcomes. It may however place corporates in a more challenging financial position. This would serve only to have a negative impact on pension scheme members and on the shareholders, who are in fact pension schemes themselves and reliant on returns from their investments.
Our opposers focused on making better use of existing regulation and support measures to ensure schemes are being managed effectively and corporates challenged when necessary, by trustees and the Pensions Regulator. Victoria spoke in particular about needing to recognise the complexity of the funding conundrum, and tailoring the approach to the specific circumstances of the sponsor and scheme, in order to ensure the DB pension promises are met.
When taking comments from the floor from our impassioned audience, there was much made of the fact that the Pension Protection Fund is a pension success story. It ensures that members are not left without benefits, and the benefits they do receive are most likely to be more generous than those a DC member can expect to achieve. Should, therefore, focus not be on making things better for DC members and letting DB schemes continue as they are, particularly given the intergenerational unfairness of focussing on DB if it is at the expense of DC?
A final contributor offered an alternative solution to the question of ‘what reform’ – proposing that the negotiation position between trustees and sponsors should be flipped, so that the responsibility falls to sponsors to seek the intervention of the Pensions Regulator if agreement can’t be reached on funding proposals, rather than the other way round.
As in previous years we took a poll of the audience before the debate and revealed the result only after the final votes had been cast. The initial vote saw 70% against the motion and the final vote saw that drop to 66%. This meant that those speaking for the motion managed to sway a mighty 4% of the voters, and those against maintained their substantial lead. Each side took that as a victory – and who are we to argue.
The arguments and opinions shared in this Debate do not necessarily represent the views of the speakers, nor their employers.