TPR – under new management?

My blog this morning solicited three comments, all of which are worth a blog on their own

I suspect that the Bank of England Financial Policy Committee recognised that the interest rate risk in DB pensions is not a natural risk but rather the creation of LDI investment strategies, and as such it is the behaviour of the schemes which adopted it which must be regulated, that is changed.

It is interesting that the 250 basis points (minimum) they recommend as buffers are very similar in magnitude to the 30% regulatory capital requirements of insurance solvency regimes but differ in that these will need to be held as cash. That magnifies their cost greatly. They will serve to limit leverage if they are enforced, but the laws on borrowing are not being enforced so there is some doubt there.

If TPR and the DWP persist in trying to bring forward the Funding Regs and Code now, it will be an act of utter folly on their part.

The second is from regular correspondent Jnamdoc

With great power comes great responsibility. TPR had independence aplenty, and it was unclear who if anyone they were accountable to or for. Anyone who has witnessed TPR and DWP will have seen DWP were/are enthralled by the “experts” rolled out by TPR and any narrative from DWP is indistinguishable from the soundings of TPR. “Experts” who it seems with a great uniformity thinking, borne of the consultancy backgrounds to which they return.

TPR’s influence, unchecked, has ran amok through the prospects of the once thriving UK DB pension landscape this last 2 decades, unseated a standing prime minister and chancellor and without critical intervention would have crashed the gilt market for Govt, and overseen the destruction of value with a now accepted (previously denied – Mr Fairs “its a timing thing”) loss of £500bn on the nations DB assets.

It still has directional influence over the investment of £2trn (formerly nearer £3trn, ’till we lost c£500bn) DB scheme assets (and thank goodness they not been able to sully the independence of the LGPS regime), with more firepower to influence the macroeconomic direction than all Govt depts other than Treasury.

The scale and influence of pensions, especially the enormous pools of DB assets is too significant for TPR to be left to its own devices, and TPR and pensions needs more heavyweight oversight from Treasury/Govt and a broader remit, recognising that only an invested healthy growing economy can afford to provide its age retired with a living wage.

Jon Spain , provides the third comment – speaking with his actuarial hat.

For so long, there has been one point of view, TPR’s, into which the consultants have been buying heavily. For long-term financial entities, such as DB pension schemes, the concentration upon assessing the correct discount rate (spoiler, it doesn’t exist) producing a single number has been fatuous. Can we be grown-up, please?

For all that , we are agreed that there is a place for a pension regulator with a new set of objectives.

It’s current pre-occupation with protecting the PPF has led it down a rabbit hole. To quote Edi Truell, who was reacting to the news that pension schemes may have lost £550bn last year as they were instructed to take risk off the table.

How on earth does this constitute ‘de-risking’ – the ideology promulgated by tPR and many in the pension advisory community? Contrast with the London Pension Fund Authority where we sold all the gilts and LDI in 2013 and allocated 45% to alternative Long Term Assets and 50% to global equities. And London has prospered in sorry contrast to UK private sector DB pensions, the UK equity market, and the poor old UK corporates who have had to pay for this ideological purchase of gilts at negative real rates, rather than invest in their businesses.

To these three voices , I add that of Stephanie Hawthorne, whose lament for the DB schemes she grew up with is the more heartfelt for the needless destruction of value she has witnessed.

The advantages of the Treasury and BOE buying in taking a stake in TPR

Surely it is time for the Pensions Regulator to relaunch , not just as the preserver of private pensions but as their promoter.

The pension superfund initiative is a case where pensions in payment can be backed by precisely the assets that the Government wants pensions to invest in.

CDC is another area where the Treasury’s objectives  for pensions can be met.

While the pension superfund initiative is  thought to have been blocked by the Treasury nervous about “regulatory arbitrage”, the reality is that superfunds are likely to achieve their desired outcome. If the Treasury/BOE have some measure of control of TPR, it would be hoped that its reluctance to allow superfunds to compete against insurers for buy-outs would fall-away.

And if CDC schemes are sold as a means for employers to invest in productive capital on an infinite horizon, what would stop the Treasury promoting CDC as its preferred form of DC.

There is much to be gained from a Pensions Regulator which continues to regulate auto-enrolment and initiatives such as the VFM framework, with the DWP;- while working more closely with the FCA, HMT and PRA on investment and funding issues.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to TPR – under new management?

  1. Allan Martin says:

    What about the 5m DB pension promises the Pensions Regulator (TPR) doesn’t regulate, the potential next financial crisis and the current H M Treasury Ponzi scheme?

    I suggest the LDI affair, BoE intervention and funded pension risk/return debate pails into insignificance compared to the UK’s index linked unfunded defined benefit (DB) pension promises. These deferred pay promises are for over 5m hugely deserving public sector employees. Our Whole of Government Accounts (2020) put this accrued unfunded liability at £2,100 bn. The “fund” is however the UK economy from which taxation will be levied in future and this prompts the above arithmetic challenge.

    The actuarial assumption underlying the schemes (NHS, Teachers etc) contributions, benefits and retirement age calculation is the SCAPE discount rate. I suggest it is the most unappreciated but important actuarial assumption in the country. SCAPE is currently set by reference to long term GDP growth of CPI+2.4%pa. Previous benefits were promised assuming real GDP growth of 3.5 – 2.8% pa. Is this reasonable and sustainable?

    GDP growth at such rates hasn’t been achieved since the 2008-09 financial crisis and we have of course had Brexit, C19 and the war in Ukraine affecting actual and prospective growth. I suggest a consequential and massive intergenerational transfer of liability to future taxpayers – you, your children and grandchildren (if they don’t emigrate).

    Rather than look at the State Pension “triple lock”, I suggest taxpayers, politicians and the media should consider this “lifetime pensions lock”. Hopefully the Chancellor will shortly announce some action in the long awaited H M Treasury consideration of SCAPE Methodology. I suggest that these pension debts are currently unsustainable.
    If attention catching headlines were required, I could also volunteer –

    • 11.5% public sector pay rise. (Pensions are deferred pay, with CPI+ increases)
    • The irresponsible OBR? (OBR Fiscal Risks don’t include this GDP shortfall.)
    • Liz Truss’s brave attempt to avoid long term financial ruin. (GDP of 2.5% pa sought)
    • Pension recession cost – only 5p on the basic rate of income tax. (= 2.5% x £2.1tn)
    • The partial Pension Regulator (TPR doesn’t regulate its own staff pensions funding)

    Your views and perhaps even some Parliamentary, OBR, HMT and media comment would aid appreciation of this other National Debt.

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