Clacher and Keating blog “Bowles to the Regulator”.

Well, They Would Say That, Wouldn’t They?[i]

Iain Clacher and Con Keating

con picture

This blog is written as a response to a challenge laid down to us in a blog written by Henry Tapper on 19th July. The subject was the Bowles Amendment to the Pension Schemes Bill currently before Parliament, and objections to that Amendment. We have had no contact with the Pensions Regulator since accepting this challenge and these objections are not unique – we have heard similar in other articles, commentaries, and discussions. We have also received several anecdotal reports that the Pensions Regulator’s reaction to the passing of the Amendment by the Lords was not a happy one.

We have written three blogs[ii] to give context to, and analysis of, the issues and problems of the DB world that the Bill and related TPR consultation on a new DB Funding Code seek to address. We would also strongly recommend reading Emeritus Professor Michael Bromwich’s blog[iii] The Killing of Open Schemes.

In this response, we first address these objections collectively, before moving to a point-by-point consideration of the objections.

By way of preliminary, we submitted the text of the amendment and the objections to an academic semiologist who has been working for the past decade on the analysis and interpretation of text by ‘deep learning’ artificial intelligence systems. Her preliminary summary of the machine’s analysis[iv], were most illuminating:

  • The text of the amendment indicates a degree of distrust in the body charged with implementing it.
  • The response was written by someone who is aligned to the view of the Regulator.
  • There are elements of Claude Rains’ ‘Round up the usual suspects’ to it.
  • The structure, three strong assertions followed by three throw-back questions, with an assertion and instruction to end, is indicative of the writer trying to make the best of a weak case, or perhaps not believing in it.
  • It is a scolding of wayward inferiors by those ‘who know better’.

Lest we forget, the objective of the amendment is to ensure that open DB schemes may remain open and continue to provide the high-quality pensions they have provided for decades, and  that no new costs or impediments are added to their operations.

The specific challenge from Henry’s blog was to respond to the following:

  1. The bird has flown
  2. It is flawed as an amendment.
  3. It adds another conflict to TPR objectives,
  4. So needs flesh on HOW to do it.
  5. Needs anti-abuse – add 1 member and ease requirements.
  6. Does it address the real issue of sponsors being on the hook?
  7. It is the government’s role to encourage any particular sort of private provision, not the regulator.
  8. It would make a lot more sense to respond constructively to the consultation on the code. 

How many times have we heard the Regulator use the line: ‘We are only implementing the will of Parliament” to stifle and end debate of their actions and interpretations? In this respect, the current situation is unusual; the Regulator’s proposed code precedes the parliamentary debate and passage mandating it. We are seeing the Regulator’s wish list, and it is clear the amendment is seen as a spanner in those works, an unwelcome disruption to their agenda.

Of course, the pretence of impartiality and uninvolvement between any government and regulators has always been a facade, a Potemkin village.


A Potemkin village’s facade.

Departments and regulators shape and, in many cases, initiate the legislation proposed by government. Ministerial capture as a departmental objective is no figment of Anthony Jay’s and Jonathan Lynn’s imaginations. There may be no user manual, and instruction may no longer be delivered in exclusive gentlemen’s clubs over cigars and port, but it is still evident. Who really decides which of the many recommendations contained in the numerous reports and studies commissioned will go forward and be implemented? Does anyone remember the 2002 Pickering Report, or the 2009 Deregulatory Review of Private Pensions?

The volume of pages of pensions regulation and legislation[v] has risen by staggering amounts – from 3,000 pages in 1990 to 160,000 pages four years ago and is now guesstimated to exceed 180,000 pages. The Regulator projects its expenditures to be £110 million in each of the years 2020-2024, up from an initial £10 million fifteen years ago. There are no overall statistics for the administrative costs to schemes of compliance. Analysis of these costs, for a handful of schemes, suggest they lie in the range 1% to 2% of scheme assets. Using the method advocated by Pamela Herd & Donald P Moynihan, in The administrative burden: policymaking by other means, of 20 times the cost of the regulator, the total annual cost to UK pension schemes would be £2.2 billion, and form the basis of much of the pensions industry’s revenues. This is out of all proportion when compared with the potential detriment that might otherwise accrue to UK consumers. The old adage, ‘when in a hole, stop digging’ seems to be sound advice.

The proposed Code is highly prescriptive, and in this regard, it is reminiscent of the MFR regime (Minimum Funding Requirement) which ended so badly. So much so that we have christened the proposed regime MFR II – the Maximal Funding Requirement.

The central ambition of this code is to raise the funding objective from the level of technical provisions to one of self-sufficiency, even if that is coded as low levels of dependency on the sponsor employers. This is an extremely significant shift. In 2006, the TPR Guidance stated:

‘Whilst technical provisions should represent a prudent reserve to hold against a scheme’s future liabilities, trustees are not obliged to attempt to eliminate all risk that they will fail to be sufficient. In particular, legislation does not require technical provisions to be set at the level needed to buyout accrued liabilities with an insurance company.’ (Emphasis added)

By 2014, reflecting Part 3 of the Pensions Act 2004, this had disappeared, and the concept of prudence assumes central position:

‘Trustees are responsible for prudently choosing the assumptions to be used for the calculation of technical provisions. They should choose individual assumptions the prudence of which is consistent with the overall level of prudence required of the technical provisions. They must consider whether, and if so to what extent, account should be taken of a margin for adverse deviation when choosing prudent economic and actuarial assumptions.’

The meaning of the word ‘prudence’ depends on the context and circumstances in which it is being used. In Part 3 of the Pensions Act 2004 there will be a range of valid outcomes as to what assumptions are prudent [vi]. But there is a distinction between ‘prudence’ and ‘reckless prudence’. To quote from Deborah Mabbett’s analysis of ‘reckless prudence’[vii]:

‘It is shown that de-risking is produced by the performance of financialized risk management in a regulatory setting where horizons are shortened. While de-risking is not generally in the interests of employers or scheme members, and is damaging to the wider economy, three features of the governance structure for pensions have stymied attempts to counteract it. These are: the spillover effects of financialization in corporate accounting, herding around industry benchmarks, and collective action problems arising from the regulators dependence on dialogue with private actors and from the risk-aversion of political actors.’ (Emphasis added)

By way of further illustration, you can either prepare a company balance sheet on a going concern basis or on the basis that it is about to be wound up. The answers are very different depending on the objective. Similarly, you can undertake a valuation of a pension scheme on an ongoing basis and set your investment strategy accordingly with long term investment return assumptions on the basis that the trustee board has reasonable grounds for considering that the scheme will be able to pay pensions as and when they fall due. Or, you can undertake a valuation on the basis that the scheme is about to be wound up and its benefits bought out or equivalently it is to be self-sufficient. Or you can try to achieve the impossible and do both (ongoing and wind-up/self-sufficiency) at the same time.

The proposed shift will magnify these effects considerably.

This shift to self-sufficiency is a massive change; its cost will be measured in hundreds of billions of pounds. There is no cost/benefit analysis of MFR II in the consultation documents. It is apparent that the Regulator intends to fill this hole with sponsor employers’ money, and the sooner the better. We should also not forget that the taxpayer has an interest here in foregone tax receipts from employers also measured in the billions of pounds[viii].

We also wonder how that sits with its objective, strangulated though its language is:

to minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of TPR’s functions under Part 3 of the Pensions Act 2004 only)’.

As we have argued and shown in numerous articles[ix], the presentation of prescribed discount rates in gilt relative terms is incorrect and serves only as a counterfactual to the actual terms of award in a scheme. Gilt yields are highly predictive of future returns only when the assets held are gilts of similar maturity. An almost tautological truth, but they have little or no predictive power for the subsequent returns of other asset classes at any horizon[x]. Presentation in this manner biases asset allocation towards gilts, regardless of their investment merits. Gilt relative pricing originated as shorthand in the derivatives markets, a world of arbitrage-freeness and replication strategies, a world where occupational DB pensions do not exist.

Before moving to consider individually the points raised in opposition to the Bowles amendment, we would like again to draw readers’ attention to the three preceding blogs and also add that these are not an exhaustive list of our issues and concerns.

The Challenges

  1. The bird has flown.

We interpret this metaphor as meaning to indicate that the decline of DB schemes has reached a point where only an insignificant number remain open. That the decline is essentially irreversible. The Pension Regulator’s DB Landscape published in January 2020 shows 13% of schemes, by number, still open and a further 43% which are still open to future accrual – a total of 3,114 schemes. Just 198 are winding up (3%).

By number of members, open schemes account for 19% of all members, and those still open to future accrual 29%; a total of 5,079,977 members. There are 1,058,864 active members in these schemes.

This is not some insignificant rump. These birds have not flown anywhere. The assertion is simply false.

Does any sensible government of the day want to risk giving this many voters, through scheme closure and significant harm to their wealth and future well-being, such a strong reason to vote against them?

  1. It is flawed as an amendment.

We accept this. The amendment as drafted is incomplete. We understand that legal counsel has been instructed to revise and complete the drafting, remedying its shortcomings.

  1. It adds another conflict to TPR objectives.

This is false. The introduction of MFR II would create a huge conflict with the Regulator’s duties and responsibilities to sponsor employers. The amendment would reduce the number and magnitude of those conflicts.

  1. So needs flesh on HOW to do it.

Jasper Maskelyne would have been proud of this objection. This is a classic of misdirection, right down to the capitalisation of HOW.


Master of camouflage, Jasper Maskelyne

With open schemes exempt from MFR II, the question is which, if any, of the new terms should be applied to open schemes. As we are not convinced that the case has been made even for closed schemes in run-off, we would expect these to be few in number, if any.

An application of the precautionary principle leads to the conclusion that the case for change needs to be made and has not been made.

There are, perhaps, two key points to remember; first, duration of investment time horizons and diversification by asset class; second, is it wise to bet against the house in a QE rigged market given the investment time horizons involved.

Pensions are longer than the duration in office of chief executives, chairs, regulators, and governments. Decisions and judgments relating to such important long-term benefits for members should not be clouded by recency effect bias.

It is also worth noting that the response to such a comment is typically, ‘so run more risk and bet on equity returns that are not there?’ Either the equity risk premium exists, or it does not. If it does not, then a foundation of all we know about investment no longer exists and all bets are off. For all of those who critique the idea that there should be some investment risk, the question that one must answer is simple. How would you invest for your retirement and would you buy gilts at these prices with negative yields? If the answer is no, then why would we expect open schemes to lock in the certainty of losing money?

  1. Needs anti-abuse – add 1 member and ease requirements.

We struggle to conceive of any meaningful abuse arising from the amendment. If an employer wishes to remain open to future accrual, even if notionally, to service and honour their commitments and promises, that is ground for praise, not vilification as an abuser. Being in possession of an open pension scheme is not (yet) a corporate crime.

The phrasing of this objection does, however, make it clear that the objective is higher funding requirements for all, when the case for that, even for closed schemes, has not been soundly made, let alone the consequences for open scheme members considered.

Nor should we forget the current ‘moral hazard’ powers of the Pensions Regulator (contribution notices and financial support directions) and the proposed expansion of those powers as set out in the Pension Schemes Bill 2020. The Regulator already has, and will have even more, powers to deal with any abuse, if it were minded to do so.

  1. Does it address the real issue of sponsors being on the hook?

The amendment would not change the present obligations of the sponsor employer. The employer still has funding obligations under Part 3 of the Pensions Act 2004, the employer still has a Section 75 debt on the employer liability, the employer and associated and connected persons are still subject to the contribution notice regime (as proposed to be expanded by the Pension Schemes Bill 2020) and the financial support direction regime.

The use of metaphor here, and the use of ‘on the hook,’ is also telling. The employer is viewed as being trapped, caught in a difficult or dangerous situation. It also implies that employers have little regard for their employees and obligations to them. It may well be that the cost of the obligation as prescribed by regulation is a strain on the employer. However, employers have and will continue to do the best by their employees within the constraints that they face (backstopped for backsliders by exposure to the contribution notice and financial support direction powers of the Pensions Regulator). Overall, with this view of being ‘on the hook’, it is a short step to seeing employers as ripe for exploitation, as milch cows (while overlooking the cost to the taxpayer).

  1. it is the government’s role to encourage any particular sort of private provision. Not the regulator.

This is true, but disingenuous as discussed above, considering the role of the Regulator in the shaping of government policy and legislation. But even by its own contorted logic, it fails in the specific situation. If it is not their role to encourage a particular form of pension, then it must also be true that it is not their role to discourage any particular form, and of course, DB provision will be deeply discouraged by the proposed Funding Code.

  1. It would make a lot more sense to respond constructively to the consultation on the code.

In looking at point 8, the adverb ‘constructively’ is notable. This appears to be no more than code for ‘in agreement with our proposals’. We may expect the industry to respond ‘constructively’ as their interest lies in ever more voluminous and complicated regulation. Few others are likely to spend significant amounts of time and effort setting out alternative approaches, including those highlighting the significant costs of the proposed regime to both business and the Exchequer, unless they believe they are being listened to and may have an impact.

Put another way, is the conclusion not that, applying the precautionary principle, the draft Code should be abandoned in its current form? The proposal may, albeit unintentionally, have as its dominant aim, making the life of the Pensions Regulator easier by streamlining oversight of the valuation process. But that is a case of the tail wagging the dog – or, perhaps, looking to create boxes to tick. In addition, it seems unlikely to succeed in streamlining anything – the Society of Pensions Professionals report that 93% of advisors will reject the ‘fast track’ approach. The consequence of the proposed Funding Code, if adopted, is that it will increase materially the workload of the Pensions Regulator – not a costless activity.



We began this commentary eleven articles and blogs ago with an article which we shared with the Regulator ahead of its publication. We have received and responded to over one hundred questions, comments and criticisms arising from them. Not one has come from the Pensions Regulator. We have no evidence that the Regulator is listening to us or anyone else. Constructive engagement requires constructive listening, not selective hearing.

Ian con

Iain Clacher and Con Keating



[i] The title of this blog is based on a often misquoted statement made by Mandy Rice-Davies, who, when being cross-examined during the trial of Stephen Ward (a central figure in the Profumo Affair) about Viscount Astor denying having ever met her, she replied, “Well he would, wouldn’t he?”

[ii] 1)




[iv] These findings were heavily caveated due to the paucity of information submitted.

[v] Robin Ellison citing work conducted by Pendragon.

[vi] See Wilberforce Edward Nugee Memorial Lecture:

[vii] Deborah Mabbett (2020): Reckless prudence: financialization in UK pension scheme governance after the crisis, Review of International Political Economy, DOI: 10.1080/09692290.2020.1758187


[ix] Blogs in order of publication:

  1. Pensions need a bonfire of regulation
  2. The other way to value DB schemes
  1. A different approach to pension scheme funding and solvency
  2. The best way to manage a DB scheme
  3. Why more funding doesn’t mean safer pensions

[x] See, Shiller, R. Irrational Exuberance, Princeton University Press.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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8 Responses to Clacher and Keating blog “Bowles to the Regulator”.

  1. Robert says:

    “We began this commentary eleven articles and blogs ago with an article which we shared with the Regulator ahead of its publication. We have received and responded to over one hundred questions, comments and criticisms arising from them. Not one has come from the Pensions Regulator. We have no evidence that the Regulator is listening to us or anyone else. Constructive engagement requires constructive listening, not selective hearing.”

    The objective of the Bowles Amendment to the Pension Schemes Bill is to ensure that open DB schemes may remain open and continue to provide the high-quality pensions they have provided for decades, and that no new costs or impediments are added to their operations.

    To me, as a member of an open DB scheme (BSPS2) which is closed to future accrual, the Bowles Amendment makes a lot of sense and is a well needed boost to the industry.

    Why is it that the Pension Regulator’s reaction to the Lords’ passing of the Bill is not a happy one and why haven’t they engaged with you and others when you have written so much on the subject?

  2. ConKeating says:

    We do not know. You can add your own speculation,

    • Robert says:


      According to The Pensions Regulator (TPR) website it says……

      “We protect the UK’s workplace pensions. We make sure employers, trustees, pension specialists and business advisers can fulfil their duties to scheme members.”

      Surely they should be supporting the Bowles Amendment to the Pension Schemes Bill?

      I am confused?

      • Robert, by your own admission, the BSPS 2 is a closed scheme. This is not the intention behind the Bowles Amendment, which is directed towards open schemes which admit new members and which provide both future accrual and past accrued benefits.

  3. Robert says:


    As BSPS2 is still up and running I assumed it was an open scheme even though it is closed to new members and future accrual…….I appear to be mistaken?

    Even so, I am baffled why The Pensions Regulator doesn’t seem to be supporting the Bowles Amendment to the Pension Schemes Bill which is to ensure that open DB schemes may remain open, continue to provide the high-quality pensions they have provided for decades, and that no new costs or impediments are added to their operations?

  4. Pingback: Open and shut conversations on pensions | AgeWage: Making your money work as hard as you do

  5. ConKeating says:

    The Pension Regulator has its own agenda which includes lowering defenestration risk for its management. They have always resisted any statutory duty to promote the provision of high quality pensions. The duty to employers was introduced as a sop / diversion from a thrust in that direction.
    Of course, they always assert that their actions are compliant with their statutory duties.
    Closed just means that no new pensions are being created. As long as a scheme has a sponsoring employer a closed scheme may be run on. In this case schemes will be slowly wound down as pensions are paid. If the liabilities are bought out then the process becomes one of formal winding up of the scheme.

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