Fight fire with fire, even if it’s friendly fire! That seems to be the tactic adopted by David Fairs as head of policy at the Pensions Regulator.
His latest blog is the clearest indication yet that TPR is adopting a more considered position regarding its DC funding code and for that he has to thank the pigeon blogger whose work features on this very blog.
My friend Henry Tapper has blogged on this topic many times and in fact in one of his recent blogs an ‘anonymous’ contributor said almost exactly this:
“I would suggest that a reasonable alternative would be to allow open schemes to set their funding and investment strategy based on the trustees’ expectation of the future flow of new entrants, but require all schemes to carry out contingency planning regarding the actions they would take if their scheme were to close to new entrants (and even potentially future accrual). This would include consideration of how they would achieve their LTO (funding and investment strategy) and their expectation of how long they would have to get there (ie when they would be expected to become “significantly mature”, if they were to close to new entrants tomorrow).”
This is almost exactly what we said, but we would go further and say that just ‘planning’ is not enough, it needs to be something more concrete and evidenced. However, I’m comforted that we may not all be as far apart as we thought.
David is keeping his friends close – but are there enemies closer still?. This we will find out when the consultation response is published, which cannot be a moment too soon!
Friends – but not that close!
Much as I like David Fairs, I still see there being a fair amount of distance between his position and that of the market (if the responses I have read to TPR DB funding code are representative). The market will be his friend when TPR shows it has paid its consultation responses the attention they deserve!
David’s big boss, the Pension’s Minister has gone on the record saying that the consultation response will include full impact statements. Frankly, the consultation should have done so too. The Pensions Regulator thought it had a done deal but it was listening too much to that part of the DB trustee and advisory which had fallen under the spell of de-risking. It had not been listening to the trustees , advisers and commentators who take the view that there is life in collective pensions yet.
The impact statement that should have accompanied the DB funding code consultation should have made it clear that the cost of de-risking is not just felt in the inferior retirement benefits of those kicked off future accrual, but in the cash-flow implications for sponsors moving to self-sufficiency and/or buy-out.
The belated arrival of some proper disclosures on financial impact will be welcomed as “not before time”; regulators need to be even-handed in consultations – and considerably more transparent than TPR has been thus far!
Friends – getting closer.
Let’s be clear, the Pensions Minister is holding TPR’s arm behind its back till it accepts his dictat that DB and DC pensions use long-term investment strategies that deploy patient capital into UK infrastructure. The alignment of this dictat to the wishes of the Chancellor of the Exchequer is surely no coincidence. Our pension funds are important to Government – not just to meet its climate change promises – but to help build back Britain post pandemic.
This is the context with which to read Guy Opperman’s statement in his Professional Pensions article
We will use the regulation-making powers to ensure that the secondary legislation does not prevent appropriate open schemes from investing in riskier investments where there are potentially higher returns as long as the risks being taken can be supported, and members’ benefits and the Pension Protection Fund are effectively protected.
As “my other friend”, Con Keating has pointed out in his excoriating deconstruction of Guy Opperman’s peice, the concept of “risk free”, as promoted by the pension industry’s characterization of investment in Government Bonds is not “political risk” free, RPI is what politicians want to make of it and may not be quite what you were sold.
The same could have been said of “fast-track” and it’s co-joined twin “bespoke” – as defined by the DB funding consultation. These strategies appear to be under review as they will need to be , if their impact statements are to be palatable to the CBI and Britain’s large employers.
It is good that much of this debate is being played out “blog to blog”. The fire is friendly but we are dealing with live ammunition. What is at stake is the capacity of employers to pay the pensions they have promised, the strain on the PPF if they can’t and the impact on millions of people’s financial security over the next thirty to fifty years. The debate cannot be played out within the walls of Napier House in Brighton, it has to be continued on pages such as this and the Pension Regulator’s helpful blog.
Note to Regulator
It is common protocol when cutting and pasting from other’s blogs, to leave a link to the plundered blog , so that the comment can be read in context. Examples of best practice are to be found on this page.
Its not just the impact of unduly stripping cash out of productive employers into low aspiration assets, or the increased cost of providing pensions (rendering unaffordable for future generations), but we are moving into very dangerous territory when Regulators and now Gov’t are effectively stoking certain asset classes creating to unsustainable levels: the Regulator through an approach that pushes all over the cliff on a lifeboat of gilts (ie future unaffordable tax receipts, for our kids to pay), and now potentially Govt directing funds toward re-building long term infrastructure. This is like tulip mania again, but worse as Govt and Regulator are actively ‘forcing’ Trustees to delve into low return and low aspiration assets on a scale that will destroy the economy. If you set the bar low enough they might just fail to reach it. Let the market decide (ie Trustees’ under a duty of care acting responsibly decide prudently) where to seek value and investment in order to pay pensions as they fall due.
Many points are made anonymously, as with all zealots, they know their arguments are built on a house of sand, and so they aim their arrows at those who challenge them.
Sorry but I missed Con Keating’s “… excoriating deconstruction of Guy Opperman’s peice.” Do you have a link?
Thanks George (and Bryn)
Apologies if this duplicates. WordPress seems slow today.
am trying to get all this but its hard for me