It’s been a year since TPR appointed Sarah Smart as Chair and her anniversary is marked by news that Charles Counsell will not be seeking a second four year term as CEO.
Sarah Smart brought youth and feminity to a role that had been dominated by male grandees. It was a positive move. Charles Counsell is not a grandee, he is a most modest man who has had to steady his regulator after the difficulties of the past few years – most notably the political fall out from BHS , BSPS and other “distressed” schemes. These schemes did for her predecessor , Lesley Titcomb, who found herself bullied out of the job, Charles Counsell has borne the crown without complaint and his four years have been relatively uneventful.
But his strength is consensus and organisation, tPR has struggled to create a coherant framework for the future and is facing a number of challenges that make the job of CEO a poisoned chalice. Specifically…
- The DB Funding Code
- The CDC Code
- Value for Money
- The Pensions Dashboard
- DC Decumulation (pathways)
- Auto-enrolment
DB Funding – hot potato
The funding of DB pensions is awkward for TPR. Notionally, the past 2 years have seen a notional improvement in DB funding , primarily because of the reduction in the cost of funding liabilities. But the complications of liability diriven investment make it far from clear whether the improvement is real, or merely an accounting phenomenum. Many feel that the true funding position of schemes such as USS is confused by valuations of complex positions based on derivatives. There is similar distrust of much equity and debt holdings in private markets. The ultra prudent approach to funding proposed in the original version of the DB funding code, appears to be moving to an acceptance that many DB schemes can and should take more risk.
Has the DB funding code fallen vitim to political pressure , not least the “build back better” letter from Sunak and Johnson, or is it really shifting its focus from a “one size fits all” de-risking to an encouragement of longer term strategies? The new CEO is going to be picking up a hot potato whatever the next version of the code presents us with.
CDC Code – much ado about nothing
The Pensions Minister has made it clear that CDC is a new kind of pension that needs its own regulatory code. The problem is that as yet there is only one CDC candidate and the code has been made for Royal Mail. No proper cost/benefit analysis has been made of the commercial advantage to master trusts of converting all or parts of their schemes to CDC and its far from obvious why most of what CDC needs to be doing (turning DC pots into pension) can’t be done using pooled funds, permitted links and the master trust assurance framework.
The Pensions Regulator is building a CDC code, but it may be a section of regulation that few schemes will use. It looks like Brasilia, a massive construct that doesn’t suit the needs of the populace.
Value for Money – a missed opportunity
It’s clear that neither the FCA or tPR have the VFM agenda, how ordinary people value the pensions they are in and make choices has proved too hard a subject for both (witness the abject failure of IGC Chair or Trustee Chair statements to have any impression on the public.
VFM needs an intuitive measure that captures public imagination. The Pensions Minister is looking to Australia, where the public appears to be more engaged with pensions and considering much more radical solutions. TPR looks to be sidelined in this. It has failed so far to convinve the public it’s the consumer’s friend and sadly – it appears to have lost the confidence of its funder – the DWP. Regaining some initiative here, will be a tough ask for a new CEO.
The Pensions Dashboards – an accident waiting to happen
TPR does not have the job of regulating the dashboards but it is in charge of making sure occupational schemes comply with the law, mandating data is made available. The process of bringing on schemes mirrors the staging of auto-enrolment , which was one of the great successes of tPR and what made Charles Counsell something of a local hero. Charles will be a tough act to follow, the Pensions Dashboard is an accident waiting to happen and will be another challenge for the new CEO.
DC decumulation – how much freedom do we want?
The bickering between regulators over how to help people organise the spending of their pensions has led to a total mess with contract based schemes being offered investment pathways while DC occupational schemes (including master trusts) are left to their own devices. The matter has again been taken back by the DWP who are promising some progress on this in November, meanwhile nobody is really getting much help and are left either to DIY drawdown, a limited annuity broking market or the services of a financial adviser.
The urgent need for a new normal way of spending pension pots, suggests that this is going to be a high priority over the next four years (the first term for a new TPR CEO). This is another missed opportunity for tPR which needs to better understand the interaction between scheme and member and be bold in providing both choice and direction for those who can’t or won’t choose.
Auto-enrolment – fading glory.
For the pensions industry, auto-enrolment is unfinished business. Implmenting the 2017 reforms is a commercial imperative if many providers are to see a return on their investment in DC schemes and member engagement.
But the Government is not so interested in what it sees as “special pleading” as in helping people get over the cost of living crisis that is upon us. So the great success story for tPR is beginning to lose its lustre and tPR are no-longer in demand as the powerhouse behind the savings revolution.
This is not so much a problem for the new CEO, but it means that he or she won’t be coming into the job as Charles Counsell did in 2018, with a halo on the head.
Can the Pensions Regulator adapt?
Since its inception in April 2005 tPR has shifted its focus from DB to DC and become not just the protector of the PPF but the body behind auto-enrolment and the master trust assurance framework. But it has failed to become a member-facing regulator that the public can trust. Its relationship with MaPS and with the FCA look difficult, its relationship with its funder , the DWP looks difficult too.
But it has in Sarah Smart, a genuinely progressive Chair who I know thinks about the issues mentioned in this blog. It has in David Fairs someone who can articulate its policy and it now has the chance to address some of the areas where it has struggled (see above).
The big question is whether it can find a CEO who is both willing and able to get to grips with what really matters, or whether it will retreat into its comfort zone, the world of defined benefit schemes that are increasingly inaccessible to the general population.
In an ageing society, we need a young and vibrant regulator and a CEO who matches the acument and dynamism of its Chair.
One question that any new CEO of TPR will need to answer is how can it be that they have allowed (and arguably encouraged) schemes to borrow in pursuit of LDI strategies when this is clearly prohibited under the legislation. Scheme members will be much more interested in these now that they are producing losses, not the profits seen earlier in the interest rate cycle.
You missed the onward march of ESG “guidance”.
time for a single regulator, properly structured and resourced