Since 2012, the industry has self regulated pension transfer exercises where employers offer staff a financial incentive, to quit good quality schemes. Industry leaders are now calling for the Govt to intervene after saying self-regulation is failing https://t.co/sSwvLQG94A

— Josephine Cumbo (@JosephineCumbo) March 2, 2020

On the face of it, employers are the villains of Jo Cumbo’s piece.  But how did employers get it in their heads that encouraging transfers out of good quality defined benefit schemes was ever a good idea?

On the face of it, transferring out of a good quality scheme (often known as a “de-risking exercise”) is what consultants call a win-win-win

It’s a win for the regulator as an insolvent scheme can look a whole lot more solvent if a proportion of the deficit flies out the window. The scheme has just become less of a potential burden on the PPF and one of the regulator’s statutory objectives has been served.   You can almost hear tPR whisper “Well done the trustees for sanctioning this”.

It’s a win for the employer who swaps a much higher balance sheet liability for a much smaller payment in cash. An enhanced transfer value may seem generous compared to the normal transfer value, but it’s a whole lot less than keeping that DB promise in the accounts. With plenty of cash sitting uninvested, this is a great way to please shareholders and meet executive KPIs.

It’s a win for the member who not only gets a big fat QE enhanced transfer value, but all the benefits of a lower discount rate resulting from the scheme switching to a gilts + investment strategy. As if that isn’t enough, the member gets a bung, advertised as a time-limited offer, which makes taking the enhanced transfer value a “no-brainer”.

But if there’s one thing that’s certain – win win win’s have losers.

So who put employers up to this?

Do you think employers worked this out for themselves? Of course they didn’t. The idea of the enhanced transfer value was promoted by corporate pension advisers to employers exasperated that they weren’t able to implement their strategies because of their pension liabilities. These strategies included leveraging the balance sheet to purchase rivals , paying mega-dividends to shareholders and rewarding themselves for their efforts with big fat bonuses.

If you were running a company and one of the big four consultancies, or an offshoot of Goldman Sachs advised you to shed a few pounds off your pension scheme with a “de-risking exercise” would you say no?

Which is why employers have been only too pleased to generously enhance transfer values from their DB plans and why tPR has been complicit.

So who do we blame?

I’m afraid I can’t share the FT article mentioned by Jo at the top of this blog. But I can tell you it points the finger firmly at greedy bosses.

Margaret Snowden, who is an about to retire non-exec at TPR, wants the Government to be given greater powers to stop corporates from de-risking schemes in an unfriendly way.  She might like to have a conversation with former TPR exec in charge of DB , Stephen Soper, who now heads the pensions corporate advisory team at PWC. Perhaps she might like to ask him just how much of his firm’s pension revenues have derived from organising these “exercises”.

It will not however be the big accountancy firms or the other corporate advisers who will be fingered. Instead it will be the firms who actually provided the advice. LEBC has already “voluntarily” handed back its transfer permissions, there are plenty of other advisers who acted for employers and were selected by advisers including the big three actuaries. These large firms did not give advice, but  “supplied” to the corporate IFAs who are now coming under pressure from the FCA.

It would appear that it is the advisers who are carrying the rap and not just the corporate advisers. The PI bills of all advisers and the FSCS levies reflect the impact of wrongful advice and this is putting up advisory bills and making pushing advice out of the reach of many people.

TPR should be asking questions of the advisers too!

Back in 2015, I sat in an NAPF conference hall and heard the then pensions minister rail against Boots for offering “sexy-cash” incentives to members of its pension scheme to transfer out. Long-serving employees could get a cash-bung for giving up their pension rights and taking a DC transfer.

I can cite three examples of the failure of tPR to deal with issues resulting from corporate advice to employers over the pensions offer

1. Boots “sexycash” 2015

Steve Webb was right and I applauded him. You can read my blog at the time, which reads very much like this blog- five years later. Nothing much has changed.

Will the Pensions Regulator start turning over the rocks at the big corporate advisers? I doubt it. These consultancies are peopled by former staff of the regulators and have compliance teams adept at batting away interfering lawyers from Brighton. “What chance have you got against a tie and a crest” – as Paul Weller had it.

2. Oxleas NHS trust “opt-outs” 2016

In another blog, written in 2016, I wrote about the Oxleas scandal where an NHS trust was offering sexy cash to employees not to join the NHS pension scheme. This scandalous behaviour was actually condoned by tPR who suggested that it was simply part of a flexible benefits reward strategy.

3. BSPS – “RAA” – 2017

Here is how tPR drew a veil over its involvement in the setting up of the Regulatory Apportionment Agreement in February 2018  (p15)

We are aware of significant concerns about the advice given to some members’ considering this option by certain financial advisers and have worked with the FCA and The Pension Advisory Service to ensure that affected members were made aware of the appropriate sources of advice and guidance in order to help them consider their options.

In all three instances, tPR have been able to argue that the end justified the means. With Boots, a deficit was reduced, with Oxleas, the NHS saved money and at BSPS more than 20% of BSPS’ liabilities were transferred to members to manage.

It’s always the member who loses

There are of course many examples of sophisticated investors who benefit from managing their money rather than having a pension paid to them.

But they are outnumbered by the many people who take transfers and pay a high price for the investment of their money with little value in return. What looked like a good idea when sexy-cash was being fluttered in people’s faces, looks less of a good idea when markets go into free-fall.

How many of the people who took CETVs from Boots still have their pensions advised by the people who set things up for them in 2015?

And where are the advisers to Boots and Oxleas NHS Foundation Trust and Tata Steel today. They are hiding behind a shield of compliance and letting the IFAs take the caning. Now they will hide behind compliance and let the employers take a caning. One of the big four consultancies changed name and ownership yesterday, others will follow. Slowly the advisors will slope off into retirement and all accountability will be lost.

Meanwhile the long-tail of consequences for members is only just beginning, The Boots sexy-cash has been spent , pensions have been unearned at Oxleas and the BSPS members are campaigning at Westminster because they at least have an advocate (Al Rush).

It is not good enough to allow ETVs , condone opt-outs and set up RAAs with no consideration for the advice to members. TPR may like to hide behind the “we have insufficient powers” mantra but they have a statutory objective to “protect the benefits of pension scheme members”. Time and time again TPR has put scheme funding considerations before member protections and considered the PPF their client to protect.

Frankly – lining up employers as the next villains of the piece is not good enough either. They should take a long hard look at the behaviour of corporate advisers and their role in de-risking exercises and they should take a long, hard look at themselves as well.