Our CEO Nausicaa Delfas today used her first speech to the industry to call for a united effort to meet the 'pensions challenge' to make the system the best it can be for savers. https://t.co/87rKnr7zRY pic.twitter.com/DO3RY8akhL

— ThePensionsRegulator (@TPRgovuk) May 23, 2023

The Pensions Regulator’s link is to the press release which offers edited highlights of the speech, the transcript of the speech itself has been published here. It is probably the most coherent statement of this Government’s intent on pension policy and is notable for its peculiar style. My guess is that it was written by Nausicaa Delfas herself.

My vision for TPR is clear: to enhance the pensions system, to support innovation in the interests of savers as well as to protect savers’ money.

This is a different vision from what has come so far. “Innovation” is a new word in TPR’s lexicon. The Pensions challenge is to “make workplace pensions work” and to respect the shift in risk from employer to saver. It recognizes the particular challenge savers have at retirement

We have created a new market. And the millions of people saving for retirement deserve that market to work for them.

The speech is about DC and about delivering better value for saver’s money through

consolidation, governance and trusteeship, and the imperative to develop good value ‘at retirement’ solutions

This is a quite new agenda.

In her own words.

My contention that this is a self-penned speech is based on the peculiar syntax which takes over when it starts dealing with value for money. I was not in the room when it was delivered but reports suggest that TPR’s CEO struggled to deliver certain sections. The speech is not simple prose but the product of rigorous thought. Take this rumination on how employers are taking pension decisions on behalf of staff.

Employers should consider whether the provider is any good and move on if not — it seems to be very much like ‘set and forget’

There is a new thought here, there is no regulatory imperative for employers to review their original decision on workplace pensions and the tools for doing so are clearly not fit for purpose

Many trustees rely heavily on their advisors, who are almost totally focussed on driving down cost — that has to change if we are to deliver real value, with advisors competing on that instead.

Although this has been said many times on this blog, it has not been said by TPR, this is new. The employer and adviser’s role in improving value rather than driving down cost is a radical shift in policy.

We need to make genuine changes to the system, not merely adjust some minor points. We need fundamental shifts in thinking and delivery.

The fundamental shift is away from defining value by way of scheme characteristics and towards evidence of good outcomes

its central objective and is looking to define the data that DC schemes will have to disclose in the future to demonstrate these are being achieved

“Going for growth”

This is the call to action to trustees,

Trustees need to consider if they are really acting in the interests of their members if they are driving down costs at the expense of returns.

Delivering holistic value for members is your fiduciary duty and all savers deserve value for their money.

Many of the trustees of DC pensions double up as DB trustees. For a quarter of a century they have been told it is their duty to take risk off the table. Now they are told it is to do quite the opposite.

“As regulators” TPR is not about requiring trustees to make specific investment decisions , but the speech moves on to encourage the use of Productive Capital in DC schemes. Regulators can’t but (by implication) others can.

Over time, we hope that the value for money framework will shine a light on performance and decision-making giving the tools for trustees to go for growth.

I cannot remember the phrase “go for growth” ever being employed by the Pensions Regulator before this speech.

Nor can I remember such a brutal threat to DC trustees as this

Where we find poor performance, the message is clear: wind up and put your members into a better run scheme. Or we will consider all powers at our disposal.

Again the peculiarity of the syntax suggests this is from the pen of the speaker not a ghostwriter.

Trustees must raise their game

It’s clear TPR expect the skills and culture of trustees to improve and for professional trustees to be on every board.  They should be asking ‘Is our offering the right one’?

It is clear from the rest of the speech that TPR are expecting many trustees to be handing over the keys within months and years.

Fewer but more professional trustees, possibly registered- though Delfas reaches a hand out to the lay trustee, it’s clear they have to raise their game.

At retirement

The sharp focus of previous sections of the speech is lost when Delfas moves on to the “at retirement” decision savers have to make about what to do with their pots.

It is noticeable that the words “dashboard” , “advice” and “engagement” are absent.

Instead there is more of the same – we have heard since 2014 and the announcement of the pension freedoms

Our aim is that schemes either offer, facilitate or signpost high quality decumulation products and services so that right across the journey from saving to spending — and sometimes a little of both at the same time — savers get good value.

Schemes are encourage to innovate to deliver this, but there is no mention of what might be a default approach, so we must conclude for now that an extension of investment pathways is still being considered.

Frankly, this is first base stuff. There is potential innovation in this space but for it to happen, providers need a clear steer about how flows will be directed. The Pensions Regulator needs to have a better story to sell than this.

The lessons from Australia’s Retirement Income Covenant is that we need a clear purpose for what the pension system is supposed to do and schemes need direction on how they achieve that purpose.

Finally, something on DB

While the DB funding code is still skulking in the background, it’s clear it won’t be around this year and may end up being abandoned. Instead we can almost hear the “go for growth” mantra being issued to DB plans

Buy-out may be the answer for many DB schemes, as they will have seen their funding positions improve in recent times. But that market is likely to be constrained and some will prefer a different path. We think the market for innovation and new models in DB has been developing and brewing for some time, including the introduction of Superfunds, and we expect trustees will have more options available to them in the coming years.

The options for trustees other than to lock into self-sufficiency and buy-out are currently very limited indeed. The proof of the pudding is in the eating. The only superfund approved is little more than a waiting room for buy-out while the one superfund which aims to provide pensions itself – the pension superfund, has retired bruised from five years of trying to get approval. The word “brewing” is perhaps a typo for “stewing“.

Actions speak louder than words

We wait to see if Nausicaa Delfas’ words translate into actions. Superfunds, CDC and the readiness of schemes to connect to the pensions dashboard are all challenges to a regulator.

The innovation from the private sector has so far been stifled. We have seen nothing from Clara , RM CPP is yet to launch and and the dashboard is languishing in a regulatory backwater.

TPR challenges in this powerful speech – trustees and funders should challenge back. Now is the time for action from the regulated and the Regulator.