David Fairs – speaking last year at the First Actuarial conference

David Fairs and I were born within a couple of months and have both spent our careers in pensions. We enjoy each other’s company so when David suggested that we spent the last 90 minutes of the business week on a Teams call, I cleared my afternoon. Whereas I have spent the last 37 years thinking about how to get better member outcomes, David has approached pensions from the employer’s perspective wrestling with the difficult questions of affordability, security and fairness that underpin “integrated risk management”.

But whereas the beaten track for policy-makers tends to start at the Pensions Regulator and end in consultancy, for David has been the other way round.  After 23 years as a partner at KPMG, David chose to move to Brighton to work for the Government, forsaking a much more lucrative end of career move in the private sector. Few people would call David a career regulator, his strength is that he sees issues with the benefit of a commercial career behind him.

A conversation focused on the corporate (not saver’s agenda)

Although TPR has recently set out its strategy for the next 15 years in terms of protecting savers, we scarcely touched on DC in the hour and a half we spent together. Where DC entered the conversation it was in relation to big data issues, especially the data-readiness of DC schemes to meet the challenge of the Pensions Dashboard. TPR are clearly interested in any information they can get on the quality of data in the DC schemes over which they have oversight, the speed at which the dashboard is delivered and the value people place upon the dashboard will depend on the capacity and willingness of these schemes to share data.

It was typical of the conversation that we focused on the challenges to schemes and scheme sponsors in releasing this data (not on the the engagement with members). My take is that TPR will continue to focus on DC from a corporate perspective (AE compliance, dashboard compliance) and is a long way from the FCA’s stronger consumer perspective. Despite TPR professing to be strategically moving towards protecting savers, there is evidence of this consumer focus. Even work on scams is focusing on employers adopting Margaret Snowden’s Pension Scams Industry Group.

Fairs on funding

As TPR pours over 130 submissions to its consultation on the DB funding code (and I hope the points raised by Keating, Clacher, Compton and others on this blog), it is not surprising that our conversation quickly moved to the funding of the guaranteed pensions that many in pensions seem to want to consider “legacy issues”. I asked whether the maintenance of schemes that remain open to future accrual and indeed new entrants was an irritant or (as Guy Opperman has stated) , something that should be encouraged.

Fairs was keen to point out that within the definition of “open scheme” were schemes that had to retain a section for future accrual and new entrants and those who saw the provision of pensions to future generations as what they did. For the purposes of the long-term objective of a scheme, those that sort to pay pensions from within the scheme (as opposed to buying out) might share a similar investment strategy with an open scheme. This point came out of a discussion over the capacity of defined benefit schemes to embrace “patient capital”, the illiquid investments into which everyone in Government from the Prime Minister down, is keen for pensions to invest. The conflict between fast-tracking pensions into risk-free strategies and the broader policy issues around re-funding Britain through its pensions is a live topic for TPR.

Fairs was keen to differentiate the investment strategies linked to funding from the disclosure requirements from the DWP’s TCFD initiative (where the emphasis is on mindfulness of the impact of the scheme’s investments on environmental sustainability). I was surprised that TCFD was not seen as a part of the Long Term Objectives of the scheme and separate from the funding debate, TPR are clearly wary of getting dragged into debates on the impact of ESG on returns (and so scheme funding).

Fairs on push back from open schemes

Guy Opperman has openly stated that the DWP were surprised by the vehemence of opposition to the powers being conferred on tPR to enforce the DB funding code (as evidenced by the debate on amendment 123 or the Pension Schemes Bill- the Bowles amendment).

We talked about the position adopted by Guy Opperman during the debate which appeared to point to greater flexibility in the use of the bespoke option within the DB funding code.

Trustees and sponsors  have been concerned about of open schemes having to get tPRs blessing when moving away from “Fast-track”. For them, this sounds like more of a pre-requisite than a cross-check on trustee and sponsor plans. Schemes  feel they may be treated as guilty until proven innocent and that the Pension Scheme Bill’s powers will give tPR way more leverage in agreeing investment and funding plans.

In practice, the industry seems to be dubious as to whether tPR has the capability or resources to agree bespoke solutions for all who want to go that way. One multi-employer has written to me on this

We handle over 100 sponsors … and agreeing with some of these can be a lengthy and protracted process. The Scheme specific funding regime that the Minister is looking to build on is more of an art than a science. TPR would need a deep understanding of sponsors business, it’s barriers to entry, capital and debt structure, opportunities and threats as well as the nature of benefits offered and scheme membership characteristics.

The question of whether the Pensions Regulator has the capacity to enforce its powers , if bespoke becomes the predominate route for schemes, seems to go the heart of the matter. There may be flexibility within the code for a thousand flowers to bloom, but who will keep the beds weed-free?

Fairs on impact assessments

David Fairs has clearly got his hands full with the 130 responses to the 58 questions of TPR’s recent consultation and he was giving nothing away with regards any changes in position from the regulator. However, he did drop a broad hint when confirming that the consultation was the product of a pre-pandemic world, that changes might be afoot.

He was keen to push back against criticism that TPR had provided no impact-assessment of the proposals within the code arguing that TPR could not pre-judge the outcomes of its proposals before the proposals had been finalized.  Here he seems at odds with many of the consultancies who have been keen to tell their clients and the world the cost of the Code on sponsors. We discussed the specific numbers published by LCP, which Fairs was keen to downplay. Here at least, I felt that we were moving into an area about which the Regulator felt uncomfortable. It will be interesting to see whether TPR approach any concessions on fast track and bespoke as resulting from local conditions (Covid) or from a more fundamental re-assessment of its role.

Fairs on transparency

That this conversation could be had , suggests that David Fairs is prepared to put his views into the open, even as the consultation responses are being absorbed. This is unusually transparent in itself, though Fairs is far too accomplished a spokesperson, to drop hints to an amateur blogger.

There were points our conversation when I sensed engagement with genuinely difficult issues but for the most part, David Fairs gave the impression that what we saw in the  consultation , was what we were going to get.

With no hint of any major changes in position by TPR, the debate moves from the substance to the nuance of the regulations and here Fairs is at a great advantage holding most of the cards and being an accomplished player.

I suggest that what we get from this consultation will be nuanced change resulting from what Fairs referred to as “some interesting ideas”. But what we are unlikely to see is any major changes in the direction taken by the Pensions Regulator, the regulator’s not for turning.