Yesterday I wrote about a meeting between the regulatory sub-group of the Treasury Select Committee with members of the PRA and in particular Sam Woods, its Deputy Governor.
On the same day that meeting was going ahead, Stephen Timms sent Sam Woods a letter asking what the PRA was up to. I have no reason to suppose the two events were connected but the letter makes interesting reading in the light of the PRA’s comments in parliament (and my thoughts on those comments)
This letter has now been published on the Work and Pension’s website.
I hope that Sam Woods takes this opportunity to review the statements he made about the potential risks to insurance companies and to the financial system from their participating in superfunds. The member’s risks of superfunds failing , which seem unlikely, fall to the PPF not to the superfund’s shareholders or policy holders, their risks are subordinated. This goes whether the sponsor of the superfund is an insurer or otherwise.
The PPF has some capacity to withstand the financial risk of an occupational scheme failing and so far, the failure of regulators to offer superfund consolidators , commercial opportunities to deal , means that superfunds currently represent no risk to anyone. Risk will only be assumed as and when superfunds capital reserving issues are resolved, the gateway reviewed and a price extraction mechanism agreed.
The risks to Government of superfunds not succeeding are obvious. We will continue to have gross inefficiencies in the management of DB pensions leading to ongoing strain on corporates and little or no opportunity for productive investment in the underlying funds.
Stephen Timms’ letter is pertinent. It stops short of asking Sam Woods whether he and the PRA know what they are talking about, but not far short.
Superfunds are occupational pension schemes, giving PRA regulation of them is tantamount to handing over the keys to TPR’s Telecom House.
If the Mansion House reforms are to achieve what they set out to, we need consolidation of DB funds (as well as buy-out). We need superfund consolidators and we need them now. The DWP has opened the door, the DB options consultation and the response to the 2018 consultation gives hope. Now TPR needs to catch up. The PRA should take their tanks off the lawn.