The Pensions Regulator with a lot of legal books

As you must be interested in pensions, it’s worth taking a couple of minutes this morning to listen to minutes 8-15 of Radio 4’s World tonight (downloadable as a podcast). It’s a well researched and well produced article with a particularly cogent comment from a Berkshire Farmer who is bemused by the choice of workplace pensions he has as he stages auto-enrolment. Good on that farmer, not many employers are concerning themselves with the outcomes of these plans- those that do- we salute you!

I’m afraid that the article only confirms what regular readers of this blog know

1. The Regulator is not able to articulate a cogent strategy for regulating pop-up mastertrusts
2. Pop-ups like Myworkplacepension (MWP) can make the incredible credible with a website and a City mailing address.
3. The success of auto-enrolment risks being undermined by a failure of Government to get to grips with how we chose our “Workie”.

1. The iron hand of the Treasury is needed to pop the pop-ups.

Perhaps the Treasury have finally lost patience with the DWP’s failure to properly engage with the regulation of workplace pensions. Harriet Baldwin, Chief Economic Secretary to the Treasury answered her Shadow  in the Commons this week

“I can let him into a little secret on that: the government will bring in legislation on master trusts and on the points he raised as soon as practically possible.

“We had considered bringing it in as part of this piece of legislation, but we felt that since the bill had gone through the House of Lords it would be very late on in the legislative process to introduce something as extensive as that.

“That was my judgment, and I hope that he will support me on that. However, we aspire to find very soon the first appropriate vehicle that could be scrutinised by both chambers to bring in the regulations relating to master trusts and auto-enrolment.”

Presumably it needs auto-enrolment to reach its capacity crunch before action is taken. The Pension Regulator has been well-intentioned for too long. I have personally reported 19 dubious master trusts to Action Fraud,  I’ve not had an acknowledgement from them and I can say no more as that would be to tip them off,

I haven’t bothered  with MWP who seem (at present) little more than a lead-generation scam.

2. The DWP needs to get to grips with the durability of what qualifies as a workplace pension.

Currently there appears to be no strategy beyond the master-trust assurance framework.

Is the master-trust assurance framework the solution?

If the issue is the sustainability of master-trusts, the answer is clearly “no”. Were MAF, which is a JV between the Pensions Regulator and the ICAEW, to be compulsory, it would stop pop-ups like the one BBC highlighted, pan for gold in other sewers, but it wouldn’t make legitimate mastertrusts with sustainable business plans, any safer. Indeed the cost of getting and retaining MAF is -in itself a significant issue for growing schemes.

What MAF does, is ensure that good processes are in place, it has value but I think there should be proportionality in its application so that we do not forestall new schemes.

Lest we be in any doubt that there is no clear link between having MAF and having a sustainable business plan, let’s consider two of the five plans that are promoted as MAFFED-UP on the Regulator’s website.

NEST

The Government’s own scheme would, were it not for the tax-payer covenant, would fail any due diligence on its sustainability.

NEST is not financially viable and  shows no signs of it becoming so, the National audit office has stated NEST requires £20bn  in assets to meet its costs.

 NEST’s current assets  are £623m and its last reported accounts showed it owing £378m to the DWP. NEST’s income in 2015 was £18m and it was burning £1.5m a week. We estimate that NEST is currently about 70 years away from sufficiency.

Having MAF does nothing to ease this problem. Faced with these financials, any adviser doing due diligence on NEST, must consider how NEST – if required to – could accelerate its repayment structure .  With no scope to do so by increasing member charges, advisers must conclude that there is significant risk that NEST will have to take money from  its existing customers (participating employers) and or future customers.

I see no risk warnings to this effect on the Pension Regulator’s website

NOW

– the other Government backed pension scheme that has MAF and is thus promoted on the Pension Regulator’s website. 

Now also had considerable debt but has converted a £50m deficit into equity ( a good move in our opinion). However NOW’s finances look pretty shaky too.

NOW has 250 staff who support 17,000 employers, 750,000 members and they have to draw revenues from an average pot size that is currently around £251. NOW’s funds under management are around £200m, we reckon they currently have revenues of under £1m to pay these staff and fund the technical development needed to meet the challenges of AE(II).

Were it not for the support of the Danish Government , NOW would also be an uninvestable basket case and…

I see no risk warnings to this effect on the Pension Regulator’s website

Peoples Pension and Wellness

There are two further mastertrusts that the Regulator promotes, Peoples Pension, which has its house in order and looks to us to be heading for self-sufficiency and Wellness which is small and secretive to the point that they have not submitted themselves to the due diligence that Pension PlayPen requires for a workplace pension to be offered on our platform.

If you are a contract based provider, you are not to be found on tPR’s website

That Wellness is promoted as a credible choice and Legal & General, Aviva, Royal London, Standard Life, Aegon and Scottish Widows get no mention (L&G and Hargreaves Landsdown don’t even get a mention on the ABI’s list), says it all.

3. The Regulator’s guidance on choosing a durable pension is not fit for purpose

Notable omissions

If you are a contract based provider, you are not to be found on tPR’s website. You may be mentioned on a separate list of ABI members offering workplace pensions.

That Wellness is promoted as a credible choice while Legal & General, Aviva, Royal London, Standard Life, Aegon and Scottish Widows get no mention (L&G and Hargreaves Landsdown don’t even get a mention on the ABI’s list), says it all.

L&G and Hargreaves Landsdown and other credible SIPP providers such as Intelligent Money don’t even get a mention on the ABI’s list.

As the BBC point out in their accompany article on this subject,

Unlike big pension providers – known as contract-based schemes (Sic)- master trusts are not regulated by the FCA. Instead they are overseen by The Pensions Regulator (TPR), which provides a much lower level of supervision.

The BBC can be forgiven for being confused by the Pension Regulator’s website. You can of course use a contract based scheme (fully regulated by the FCA) as your workplace pension.

It seems that the BBC  researchers just couldn’t get their heads round why the strongest and best regulated workplace pension providers, don’t appear as choices on tPR’s choices pages.

If you find this level of confusion from BBC researchers, just how confused is the Berkshire Farmer and the 1.5m employers who will have to choose a workplace pension over the next three years!

The final group of providers  excluded from consideration are the small niche master trusts that have sound financial backing, credible business plans but don’t have MAF. We feature several on our website including BlueSky, Salvus and Smart. We exclude an awful lot more (mainly for reasons of financial strength). These niche providers serve to keep the big boys on their toes, offer “something different” by way of product and are useful in providing capacity in the market. Again, to see such providers excluded while Wellness is promoted, is a perversion caused by tPR’s over-reliance on MAF and under-reliance on independent market intelligence.

So I really cannot see how the Pensions Regulator can point to the providers promoted on its website and expect the Berkshire Farmer to make a reasoned comparison. The Regulator gives no guidance on comparisons of the costs of these schemes, their compatibility with employer payroll, their at retirement options or – most importantly of all- the investment of people’s money.

It is not the Regulator’s job to do so, but it should at the very least signpost where employers can go to get the help needed. This is the Berkshire Farmer’s complaint- he knows not where to go.

Options exist for employers to choose a workplace pension with due regard to investment, inter-operability and cost, but you will find no signposting to them on the Regulator’s website – PLSA and ABI membership lists do not make for an informed choice!

Frankly it is not good enough for the Regulator to ignore the organisations who are offering a meaningful service to employers. It’s time they got together with people like me, Richard Hulbert of DeFaqto and Nick Keppel-Palmer of Husky (quoted by the BBC).

The solutions are at hand, why doesn’t the Pension Regulator promote them?