Risk averse regulators now need to celebrate risk

At the PLSA investment conference earlier this year, Treasury secretary , Andrew Griffiths, told his audience they should celebrate our economic successes and in particular encourage the risk taking that creates them. In retrospect, we can see him laying the ground for the Mansion House Reforms which encourage a “new mindset” in pensions where risk taking is to be encouraged , not suppressed.

The phrase “new mindset” will be most associated with the Pensions Regulator’s” new CEO who used it in a recent blog (featured here). Nausicaa Delfas demanded a new approach to investment to improve member outcomes.

But it is one thing to say something and another for that utterance to be adopted. TPR is institutionally risk averse.

Nowhere is this so obvious as in its attitude to profit. It’s favored model for commercial master trusts is the not for profit model – most notably championed by Nest and People’s Partnership but also by the Pensions Trust. The vast majority of occupational schemes are run on  a not-for-profit basis , the idea of professional trusteeship has been adopted slowly and reluctantly. The pension protection fund is avowedly “not for profit”.

The FCA, by contrast, is keen to innovate innovation , runs sandboxes and sees profit as the means by which the financial service community prospers. Critical to its dealings with those it regulates is the business model and its capacity to deliver revenue, not just for its customers, but for shareholders.

The problems arise, when commercial organizations behind the “successes that we should celebrate” are seen as “money grabbing”.  The battlegrounds over the past few years have included the workplace pension default charge cap, the Sunak/Johnson letter demanding greater pension investment in productive capital and most recently the problems TPR is having establishing a model by which Pension Superfunds can make money ( a phrase known to the regulator as “profit extraction”).

It is a culture war of sorts, and it’s not going to get sorted easily. It is best recognized and spoken about. Profit is not a dirty word; profit generates taxes that pay for the public services- including the regulators. Pensions are funded out of the excess funds in corporate and personal budges, the profit above the payment of overheads. Without profit, we would return to a medieval world of feudalism or (updated) a utopian world of egalitarianism.

But these worlds of Statius are unacceptable to us, we require social mobility and we celebrate each basis point of growth in our domestic product as a sign of progress. We need to be more productive to compete in a global economy and though we may individually yearn to stop the world so we can get off, collectively we do celebrate the successes that come from risk taking.

The not for profit behemoths, which include Nest, People’s Partnership, the PPF and the large collective DB schemes, have achieved a lot. They are now in a position to launch entrepreneurial activity and do so.

The LGPS has gone even further in embracing risk taking in its investment strategy with levelling up  funding start ups at a local level. They do celebrate their success and invite the risk takers to speak with them. Surprisingly, I found at a recent LGPS conference, a self-confidence that I haven’t seen elsewhere in the world of funded pensions.

So I see models which have changed, and I don’t think that old concepts of mutuality that fire the unions and left wing thinking more generally, need sit uncomfortably with the profit- motive. Gregg McClymont’s pinned this article to his linked in profile.


Not everyone is incentivized by “profit”, but we all aspire to  success in our endeavors. Gregg was a highly successful Labour politician who challenged the coalition Government to improve pensions. He’s continuing to do that working for IFM investors and he’s incentivized in his job as you’d expect someone carrying his level of responsibility to be.

Gregg is getting on with it and he’s being allowed to because large pension schemes, wherever in the world they be, profit from investments in unlisted illiquid assets that make money.

We cannot ignore the profit motive, it is the incentive for us to do the jobs we do, and even if we do not distribute profits to shareholders, we distribute them to ourselves.

Insurers and private equity managers seem at war, but they are co-dependent on pension scheme capital. Pension schemes are dependent on their services. While we might like to see greater transparency in pricing and in the reporting of profits, we should not deny the rights of those operating in this world of secondary banking, the right to be rewarded for risk taken.

So long as our regulators remain “risk averse”, they may feel they can be “profit averse”. But they must be paid, and without profitable revenues, there are no funds to meet the  payroll.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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