So what’s this “tough new regulatory environment” for DB pensions?

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That’s tough

 

Next week I’m on holiday – but I’m not – because I’m doing loads of meetings and moderating a session at the DG DB pensions conference.

What you have to do when you moderate these things is get all the people together on the phone and find out what they want to talk about. Which is what I was doing yesterday, in between doing my day job and messing around with Citywire.

It’s been a whole month since I was working with First Actuarial so I can now call myself an ex-consultant and DB something that I get not advise on.


Tough?

The purpose of the session I have been asked to moderate is to determine how trusters are responding to the “tough new regulatory environment” which apparently has been put in place by the Pensions Regulator.

Tough new regulatory environment?

Social Purpose

From what I could get off the call, the Pensions Regulator is keen that the Trillion pounds plus in funded DB plans is put to work for good. This means that it helps global and local goals to improve our environment, sustain our planet and reinforces good governance.

If it is tough for trustees and the people they employ to raise their game in these areas then they need to explain why. Frankly it is a challenge that any trustee should relish.

Funding

The same could be said for the sustainability of a scheme’s capacity to pay the pensions promised to its members.  DB schemes don’t have the capacity to flex their liabilities, but they can improve the means they have to meet their liabilities by sensibly matching what they have to pay to what they have to pay it with.

If it is tough for trustees, with all the help they get from extra contributions from sponsors and the advice from actuaries on liabilities and advisers on their investments they they need to explain why. Frankly it’s a challenge they have known about for decades and if they find it too tough, they have  no business doing the job. The Pensions Regulator appears to be taking a “shape up or shape out” approach, not before time.

If we see consolidation , it will start with the collapse of trustee boards into sole trusteeship, move on to the pooling of funds and finish with the pooling of liabilities. What little diversity of approach left in DB trusteeship will disappear as schemes conform to the rules of the endgame.

The choices around consolidation will be about how and when , not about whether . The Pensions Regulator has come to bury schemes, not to praise them.

Conflicts

What little has come out of the Competition and Market Authority’s review of DB relates to conflicts between those advising on and those managing schemes. These conflicts when they are the same people and this practice is known as fiduciary management or what other IFAs know as vertical integration.

These conflicts are well known and aren’t going away as the consultants have collared most of the available resource and are determined to eat as much of the pie as they can. The Pension Regulator is trying to manage the conflicts and the consultants are running rings around them as they did the CMA.

Frankly – this is a battle lost and the Pensions Regulator might as well accept that in the sorry state that DB is now in, they’d be better off leaving the consultants to fight over the scraps like hungry hyenas.

Strategy

The tough new regulatory environment  also requires trustees to work out what their long term strategic goals are.

If it hasn’t become apparent from the rest of this blog, I do not have much truck for this “toughness” word. “Tough” can properly be applied to the world that millions of Britains live in where pensions get paid from 66+ by the state alongside universal credit. Tough globally includes countries where living to 66 is an achievement in itself. Tough is seeing your house and land underwater through rising see levels or to live somewhere where it doesn’t rain any more.

Frankly, “tough” doesn’t really come into it.

Trustees are charged with paying the pensions promised to their members till the final day when they are due or to discharge their obligations by handing the scheme over to a third part – whoever that may be.

The long term strategic goals of a scheme may include reducing reliance on a sponsor and improving funding to a point where the scheme can be sufficient. Or it could include running the scheme as an entity intending to stay open indefinitely, as the local government pension schemes intend.

These aren’t really tough choices, they are just choices and frankly they are made for trustees by the circumstances in which trustees operate.If the sponsor of your scheme is no longer willing or able to meet the obligations you set it, then you really don’t have much choice about what happens next.

 

This tough new regulatory environment?

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I can think of no other area of commerce so cushioned from the tough realities of daily living than DB trusteeship. It exists in a pampered world in which the conference I’ll be attending will be a part.

The Pensions Regulator’s motto “clearer, quicker, tougher” is relative , not to the world in which we live, but previous regulatory regimes.

It is tougher for the Pensions Regulator, many regulators are being asked to take a 30 per cent pay cut – that is tough. It is a PPF style hair-cut which they must either accept or move on.

But for trustees, I don’t see this new world as tougher, nor even less comfortable.

The pain has yet to come and for most – is still some years away.

If you are a DB pension trustee and would like to go to the The DB Strategic Investment Forum – Wednesday 13th November 2019 – The Waldorf Hilton – London

Register here

 

 

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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