Today we are launching a discussion on our 15-year corporate strategy to protect the future financial wellbeing of savers. https://t.co/Cg1e3Ek6Eg #pensions pic.twitter.com/bBd9n4Eock
— ThePensionsRegulator (@TPRgovuk) October 16, 2020
Note to regulator; you do not decide the news agenda, that is decided by the public. The “news” that our pensions regulator has decided to “put the saver at the heart of what we do” begs a second question “what the hell have you been doing these last 15 years?”.
Protecting the member (the arcane term tPR used to use for “saver”) has been one of the Pension Regulator’s statutory objectives since it set up in 2005. Now – 15 years later , tPR seems to be accepting that pension schemes are simply a way of organizing saving, they are structures for the benefit of the saver and not instruments to deliver retirement income. If “savings” not “pensions” – what is the point of a pensions regulator?
Unless the Pensions Regulator can find a better way of justifying its existence than the five strategic priorities, outlined in this paper, this strategy document may be remembered as the beginning of its end.
A brave new vision or an admission of failure?
This is indeed a turnaround in philosophy. But it should also bring an agonizing realisation that the people who work for the Pensions Regulator know nothing about the insecurities of “savers” and are singularly ill-equipped to empathise with their issues.
At one level, this is down to empathy. If you work for the Pensions Regulator you anticipate a DB pension for your service, this pension is underwritten by the tax-payer meaning and you do not take the risks of the market tanking, you living too long or of dying before you have a big enough pot to support your family. Most of all, your employer is paying on average 6 times as much for your retirement as you would be getting in a standard auto-enrolment scheme.
At another level, this is to do with experience. In its “discussion on its 15 year strategy to protect savers” there is a list of sources for the information that informs the key insights of the paper (the “pension waterfront”). They are
• Financial Conduct Authority, Financial Lives Survey
• Money and Pensions Service, Financial Capability Survey
• The Pension and Lifetime Savings Association, Retirement Living Standards Report
• Resolution Foundation, The kids aren’t alright: a new approach to tackle the challenges faced by young people in the UK labour market
• Broadridge, UK Defined Contribution & Retirement Income Report 2019
• Office of National Statistics, Wealth and Assets Survey
• TPR’s own data
Collectively , this mass of data and academic research results in this view of “pension savers and how they will evolve”.
But this view is entirely out of kilter with the experience of most people in this country. This view only sees those on low and very low income as relying on the state pension (the grey boxes).
The state pension is a major plank in the retirement income of all but a tiny slice of the UK population. If you consider the DC pot that would be needed to replace it , you are looking at a pot value of £250-300,000 (mark to market). That amount is well in excess of the DC savings of almost everyone and it’s twice the state pension is worth almost double the average DB right of someone retiring from a public sector scheme (according to Unison).
The state pension is absolutely crucial to the later lives of middle earners and to many high earners too. I fear TPR underestimate the cost of replacing Defined Benefits and overestimate the value of DC savings. We are more than fifteen years away from recovering from the wholesale destruction of our DB system.
A former pensions minister asks just what is going on…
Hi @TPRgovuk not sure I understand this chart – if state pension v important for middle earners (as it is), why isn’t it showing for them in the chart? Thanks. pic.twitter.com/nCA61ZCZM5
— Steve Webb (@stevewebb1) October 16, 2020
David Robbins question whether tPR are aware of a Government plan to limit the state pension to those on low incomes.
The charts that repeat the mistake are testament to what happens when group think and conceptual thinking takes over from experience and empathy. The “pension waterfront” is a lot more noisy and dangerous than the analysis in this paper would suggest.
I can see a role for a pensions regulator
I would like to think that the change in direction signalled by this strategy paper will lead to fundamental change within Napier House, Brighton and that we will see a break with the past and the adoption of a new way of looking at DC. In the past, I have argued for the FCA and tPR to merge but that was 10 years ago. In its 15 years, tPR has established its own identity and it now needs to assert its own importance. But that means fundamental change in the way it “does DC”
What needs to go is the technocracy that led to the “32 characteristics of a good DC scheme” and what is needed instead is a focus on what the DC pension schemes that tPR do look after – are delivering. Those 32 characteristics aren’t going away, they still matter, but what matters more is satisfying the increasing reliance most savers have on their workplace retirement savings.
Here the five “strategic priorities” need some grounding. TPR have identified these priorities as “Security, Value for Money, Scrutiny of Decision Making, Embracing Innovation and Bold and effective Regulation“. DC savers need all these things from a regulator now and can reasonably ask whether this really should be a shift in emphasis.
I question what tPR consider their special qualification to fulfil this remit and how they wish to be judged. If pension regulation is about the future wellbeing of savers, where is the distinction between the FCA and tPR?
The key distinction is between individual and collective responsibility
I will give tPR the benefit of the doubt in this. It has an opportunity to create a specialism based on their deep understanding of collective governance and focus on fiduciary decision making (logically including the IGC and GAAs within its remit).
It has a role as the regulator of employer behaviour – especially in auto-enrolment compliance and it can act as a counterweight to individual decision making (the focus of the FCA) by promoting innovation in terms of collective guidance – through monitoring investment defaults and the collective support offered to those looking to turn pots into pensions.
Strategically tPR is the right place for the regulation of guidance , just as the FCA is the right place for the regulation of advice.
But we need a clearer demarcation
This strategy paper, launched last week as part of the PLSA conference is part of a series of awkward positioning papers coming out of DWP departments (MaPS being the worst offender). It is full of high level platitudes delivered by Chairs and CEOs that make the right noises to Government but have little practical impact. It is padded out to 23 pages by an array of weird photos but its serious intent is hard to pin down. Can we draw from this paper what is going to happen to effect this change?
If tPR is serious about focusing on savers then it needs to find a better niche for its regulation than established in this paper. It will also need to radically change the people and the culture at Napier House which is not fit for this future purpose (as evidenced by the shortcomings of much of the analysis in this paper). Finally, they will need to work out with the FCA, what the demarcation lines are in a predominately DC world. So long as tPR was a DB regulator, this question could be allowed to fester, but now it is live and needs addressing. We can’t have two regulators treading on each others toes.
Finally we need a pensions regulator , regulating pensions – not just saving – which begs a further question, one for another blog.
The U.K. once a nation of shopkeepers is now a nation of QuANGOs putting road blocks for those meeting the customer wasting time and money advising on how to navigate the road blocks. The Pensions industry has more pontificating parasites than most and what have they all achieved? Don’t worry about the State Pension just being for low paid. There is a solution, expand the poor base.
I think first we need to recognise that nothing has changed. Pensions are not paid out of thin air! People know this, but they do not save, they do not postpone spending. Very few do, and the majority does not even want to know they do bot save enough!
As a financial planner, we work with people who want to tackle the problem, and help them deal with this problem. The rest do nothing, apart from a small minority that uses Facebook groups and tend to find some solution themselves.
We can only but hope. I can’t imagine a more disconnected pious self-congratularory lot. Forgive them for what they do….Do you think in 15 years time those currently at the helm will even understand their role or accept the havoc that trails behind them from the dismantling of a DB system that was the envoy of the world?
What a fatuous graphic by TPR. It’s a piece of fiction telling an untrue story. Besides the absence of the state pension from the middle and high tiers of income, there is also a failure to recognise the prevalence of DB in the public sector and the absence of DB in the private sector. But then, if it were to highlight that, TPR would be highlighting its own failure to regulate the existence of DB pensions, TPR having chosen instead to regulate DB pensions out of existence in the private sector.
When Charles Counsell read his keynote speech for the PLSA session on Friday, I lost count of the number of times he stated that TPR’s purpose was to look after “savers”. I sent in the following question “Does the TPR focus on savers, suggest “pensions” are no longer important? Will this mean TPR becomes TSR The Savers Regulator?”. Of course Richard Butcher chickened out of asking the question. The previous week on an FT webinar, Fiona Frobisher, TPR policy lead stated TPR was not concerned about keeping DB schemes open for new members or accrual. Again when challenged (Angus Peters did not duck asking the question I had raised) Fiona stated this was not a
matter for the Regulator, but one for the politicians!
I believe TPR has lost its way. The Pensions Regulator was set up to promote good practice for the very successful private UK Occupational pensions industry in 2004, replacing the toothless OPRA which was focused on contracting out processes. The Regulator should be creating a climate for Pensions to prosper for all, rather than turning employees into “savers”. TPR should concentrate on encouraging growing private sector DC schemes to develop workable (simple) pensions in payment solutions, rather than dictating how Trustees should comply with never ending new regulations. CDC Master Trust pensions would be a sensible place for the Regulator to encourage. We already have a Regulator looking after savers interests (FCA).
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I agree that this is a stunning paper (and not in a good way). The focus on “savers” rather than pensions, the failure to understand the relevance of the state pension for most retirees, and the inability to distinguish their job from that of the FCA do not betoken anything good for tPR.
Can we have a better regulator please?
I like the way Henry’s former associates at First Actuarial have suggested this consultation may be dealt with in their latest Bulletin:
“If you are looking for something to keep the children amused over half term you can get them to send comments on the document to:
Strategy.DiscussionResponses@tpr.gov.uk“
Alan Smith at his best!
As a footnote to Alan’s suggestion, I tried that email address this afternoon and found that it was invalid. I drew it to TPR’s attention so they could open it for me, which they did eventually. But in the manner one’s come to expect of a regulator, there was no apology from them.
Regulatory language is a strange thing to behold. The final question (of four) in their consultation asks “Do our strategic priorities provide the coverage, focus and flexibility we need to achieve our ambitions for savers over the next 15 years?”
Misplaced ambitions, more like: an insatiable hunger where the selfish end always justifies the insensitive means. It seems a clearer, quicker, tougher regulator will do anything to attain what it wants without being considerate of others or sometimes even itself.
Misplaced ambitions: TPR expects the economic impact of Covid-19 to quicken DB consolidation and also to quicken the pace of regulatory change. We’ve been warned.
https://medium.com/@johncousins_68418/adam-smith-a04387d6935f
“The previous week on an FT webinar, Fiona Frobisher, TPR policy lead stated TPR was not concerned about keeping DB schemes open for new members or accrual. Again when challenged … Fiona stated this was not a matter for the Regulator, but one for the politicians!”
And there lies the problem. It is no more appropriate for TPR to regulate pensions regardless of the negative impact TPR has on the provision of pensions, than it is for Ofcom’s regulation to result in deteriorating broadband capacity, or Ofwat’s to result in intermittent water supplies or Ofgem’s to result in power cuts.