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Has tPR just signed its own death warrant?

henry tapper

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…

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.

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