Talking Heads-Life During Wartime.

Jo Cumbo has written a fine piece in the FT’s Pension Expert . 

She is sympathetic to the Pension Regulator’s current dilemma and supportive of its position over deficit holidays.

To be exact, Jo is supporting the balanced position between the tough stance tPR adopted prior to the pandemic and the de-prioritisation of pensions (against preserving cash) advocated by some in the UK and adopted by many in the USA.

In the US, corporates can postpone DB #pension payments for the remainder of 2020 under emergency COVID-19 measures. In contrast, UK companies allowed 3 month #pension payment holidays.https://t.co/6tHuJkr78W

— Josephine Cumbo (@JosephineCumbo) May 9, 2020

The Regulator and “its powers”

Jo Cumbo writes positively of the 3 month easement given to employers on deficit repayment contributions but in looking forward she is less certain

.. the dilemma the regulator now faces is what to do beyond June 30, when it is due to review its emergency three-month easement. Without the benefit of a crystal ball, it is difficult to know whether the emergency measures will still be fully required, or will need to be loosened even further.

I have been advocating that the Pensions Regulator continues to hold a strong hand to the tiller, to the annoyance of respected commentator George Kirrin.

Aren’t you being a little inconsistent about tPR here, Henry?

Yesterday: “I call on Guy Opperman, Charles Counsell and David Fairs to call off this DB consultation and to take the decisive actions that have seen elsewhere in Government.”

Today: “Right now, I see the DWP kicking cans down the road (TPR DB funding consultation, pensions dashboard and taking on the FCA over transfers). Let’s hope that some of the tools – CDC – tPR powers, dashboard legislation – are unlocked soon and we get the Schemes Bill through.“

Without proper scrutiny of the Pension Schemes Bill by our legislators, those “tPR powers” could move the DB consultation up from guidance to statutory authority. Be careful what you wish for.

Right now, the Pensions Regulator is rightly nervous about being seen to assume powers not vested in it, for the purpose of meeting its twin objectives of protecting members and the Pension Protection Fund (which aren’t entirely at odds).

Our funding consultation is about the balance between member security and affordability. Why would you still not have that debate? You might think a little differently today than you did when we wrote the consultation but surely it is right to have the debate, that is the point?

— David Fairs (@david_fairs) May 5, 2020

I can see David’s point and perhaps I’m being rash in calling for a fundamental re-think of the pension promises we have made. In many ways, schemes – especially schemes that have immunised against market volatility, are able to look forward with a degree of confidence, sufficient as they are becoming. For the trustees of the biggest schemes, the pandemic still affords the luxury of consultations

But Jo’s point about the smallest 2000 DB schemes is a good one

“The regulator already has concerns about the quality of trusteeship in thousands of smaller schemes where governance and administration has been found to be patchy.”

Poor governance and admin are the symptoms of under-supported schemes. The principal argument for consolidation seems to me that where standards are low, the covenant is weak and whether the consolidator is the PPF or a commercial superfund, members would be less at risk from being in a big scheme.

The Pension Schemes Bill originally intended to provide consolidators with a better regulatory framework to take on small schemes. Instead the DWP went with giving tPR more power and with CDC.

I anticipate a flurry of comments from George Kirrin, Robin Ellison and Con Keating who are implacably opposed to granting tPR emergency powers, but I suspect they will need to act decisively by June 30th without consultation and pushing the regulatory envelope.

In a gnomic statement on twitter, David Fairs suggests that he may become the Matt Hancock of the pensions world.

Sometimes the right decision might not be a popular decision or an easy decision particularly in a crisis. https://t.co/4z3lxURZIg

— David Fairs (@david_fairs) May 6, 2020

Life during wartime

There are clearly trustees, employers and advisers who are able to look at the current economic situation with sanguinity. Some may have sponsors who’s covenant is actually improving.

But there is a much larger contingent who see lockdown as an existential threat to their sponsor , to their funding and to their scheme’s capacity to meet their obligations.

The question of whether they should all head for the PPF is not one that can be determined in the normal consultation cycle. Put bluntly this is “life during wartime” and as David Byrne put it “I ain’t got time for that now”.

The new toolkit , in preparation for tPR – includes a radical new type of funding solution – CDC. There is time over the next few months for the DWP to work with tPR (and the FCA) to look at ways to avoid funding meltdown later in the year. This time is to pensions what December to March were to healthcare, a window for preparedness.

Despite my natural instincts to see market driven solutions though consultation, I think the Pensions Regulator and DWP should be scenario planning right now for worst case scenarios. I hope that by the time they have to take decisive action, they can be confident that the provisions of the Pension Schemes Bill are enacted and that we can see Government standing up and being counted – as effective emergency pension regulators.