The Pensions Regulator (TPR) has announced with some glee it has fined a pension fund for not demonstrating that it is value for money (Poor-value schemes are wound up as TPR takes tough action, 14 March) – the press release headline is misleading; the fine was not for providing poor value, but for not completing the box ticking. Sceptics might note that the cost of box-ticking may itself not be good value, and that paying a fine is certainly not. A fine which reduces the VfM is simply absurd.

This season has been a magnificent one for magnolia trees, which have exploded their Chinese beauty in gardens around Britain, but as we gaze upon their wonder, we might reflect on the guidance or advice given to us by The Plant Regulator. The magnolia brand is justly admired around the world, but TPR asks us to consider whether the two weeks of glory they offer are worth the (1) ten year wait while they grow to adulthood (2) space they take in the garden (3) leaves they strew on the footpaths and (4) fact that for 50 out of the 52 weeks of the year they are a monotonous green or even naked. It’s really hard to tell whether they are VfM, although plant managers (gardeners) are required to produce a study for the local council inspectorate of gardens.

Meanwhile there is a real value-for-money war taking place in the States which might cause some anguish to those of us in the UK contemplating buyout, and should pose a real concern for TPR. AT&T the telecoms company completed a buyout last year with a specialist insurer whose annual report was only 40-odd pages (although their parent insurer’s annual report was around 4,000 pages). The argument put by lawyers for members of the scheme was that the insurer was not as secure as other insurers, in other words it was value for money but suspect (the AT&T complaint is at Piercy v AT&T, 11 March). Similarly, Lockheed Martin has been sued over its pension risk transfer to the same insurer, with members alleging that the plan sponsor did not choose the safest annuity because it was owned by private equity. The insurer’s private equity ownership is criticized because it is alleged that private equity-owned insurers take on high-risk and high-yield investments to achieve higher returns than traditional insurers. These private equity-owned insurers also tend to charge lower fees than traditional insurers to take on plan liabilities. The plaintiffs’ complaint also noted that the pension transfer to Athene caused the two plans’ 31,000 beneficiaries to lose their participation in an ERISA-governed retirement plan.

The debate follows the English case brought by annuitants of the Pru (see: Re Prudential and Rothesay Life [2020]) when it sold its annuity book to Rothesay. The question for the court, though not expressed that way, was whether the member was entitled to choose to use a brand, with the subtext being that it offered worse value than other less well-known insurers. Now that smaller defined contribution (DC) schemes are being semi-compelled to merge by TPR we probably need to have a note from the regulator on the value of brand. The problem with regulators is that because they enjoy a monopoly, they struggle to understand why anyone would buy a Patek Philippe when a Swatch tells the same time – or even use a watch at all when we all have smartphones. A regulator does not have to nurture a brand or worry about good service. But the rest of us rely on trust and reputation – as do our members.

While discussing brand…

Brand was also the issue when Lidl won its legal battle with Tesco over the use of a blue square with a yellow circle inside. Given that all supermarkets make a living by quasi-copying established brands the litigation looked a little hypocritical, but it reinforced the issue of the value of a brand. What we all need to know is whether it’s OK for trustees to use an investment or buy-out brand that is more expensive. Not everything is a commodity, and trust and reputation are worth something. Meanwhile maybe all that Tesco needs to do is use an octagon in future instead of a circle although MG may have a view on that.

Trustees, risks and regulation

It’s been a busy time for navel-gazing trustees. The House of Commons Select Committee on Work and Pensions produced a report that was pretty critical of TPR’s activities and was slightly dismissive of TPR’s determination that trustees should be professionalized (Defined benefit pension schemes, 26 March). Around the same time a group called the Financial Markets Law Committee also produced a report (Pension fund trustees and fiduciary duties, 6 February 2024) which criticised TPR nostrums to invest for safety: ”The law recognises that at times there may be a range of appropriate decisions, and that sometimes (for example) a decision for an investment may be just as appropriate as a decision against.’. It follows an older DWP report (Pension trustee skills, capability and culture: a call for evidence, 11 July and November 2023). Despite all this grandstanding there is no evidence that outcome for members would be improved by requiring trustees to have more training – and considerable evidence that TPR’s own absence of training has cost members considerable sums. We need trustees to take risks, and regulators need not only to live with risk but also encourage it.

SRA, TPR and the Post Office

The operations of the Post Office, itself a kind of regulator, and the consequences of its long-standing Horizon scandal have sparked reflections about the way in which regulators enforce their will, including that of our own TPR. One of the issues has been the behaviour of Post Office solicitors continuing to prosecute when it is alleged they knew of the computer problems and that the prosecution evidence was flawed.

Solicitors are regulated by the Solicitors Regulation Authority (SRA), which has so far been silent on the episode. The SRA itself has recently been reviewed by its own regulator (a regulator of regulators, the Legal Services Board) and one of the commentators noted that while firms or individuals which have failed to follow their professional obligations should face appropriate sanctions they remained seriously concerned about the SRA ‘acting as investigator, prosecutor and judge’. Which of course TPR does. TPR would gain more authority if it changed its operations, especially given the continuingly egregious numbers of auto-enrolment fines and appeals.

Acronyms of the month

The Financial Conduct Authority (FCA) has now published a review of its retirement income advice (Thematic review of Retirement Income Advice, 20 March). Hard to know what the word ‘thematic’ adds. Anyway, giving advice on retirement is now expensive (the review does not discuss the Duke of Albany’s remark in King Lear “striving to better, oft we mar what’s well”) and the reason for the cost is partly explained by this report. Consolidation is a current meme for pension funds, but a single human seeking to consolidate their own pension arrangements, to be further encouraged once the dashboard is running, will find that to comply with FCA requirements means it now takes around 3 months or more rather than 3 days to move a pension. The reason is that it involves . . .

(1) speaking on the phone to each provider IRL,

(2) the posting IRL (eh?, with a stamp and envelope) of around 150 pages of material from the receiving provider to the ceding provider

(3) the need for the individual to complete around 20 pages of forms and

(4) the need for the individual to have a telephone chat with the ceding scheme.

. . . all repeated in the case of each arrangement, even where the Origo system is used. The FCA review sadly does not bother itself with cost or consumer expectations, but the FCA itself currently requires:

(1) the production of earlier and more frequent wake-up packs,

(2) a stronger nudge to PensionWise,

(3) the production of investment pathways

(4) retirement risk warnings and

(5) the production of cash warnings.

None of this has been costed, but it is the consumer who pays for this overkill. Meanwhile the PP Acronym Award for April is won by the FCA with the use of following terms in its report (which it calls abbreviations rather than acronyms): AR, ATR, AUM, CAR, CFL, CFM, CIP, COBS, CRP, DB, DBAAT, DC, FAD, GAR, GGR, IDD, IGA, ISA, JFPLS, KPI, MI, MIG, MVA, PCLS, PPP, PRIN, PROD, QA, RIA AT, RPPD, SIPP, SYSC, T&C, TC, and UFPLS. They forgot FFS. And we wonder why people find pensions complicated.

The FCA also wins second prize for its 166 page consultation in March on regulating pensions dashboards (CP24/4: Further consultation on the regulatory framework for pensions dashboard service firms, 27 March) which also adds AGBR, CBA, CP, CP22/25, DWP, ESG, FSMA, LRRA, MaPS, PDCOB, PDP, PDS, PERG, RAO, SYSC, GDPR UK to our required tree of knowledge. It takes a special type of person to draft this material, and they should be let go immediately.

Warnings/disclaimers and the arts

The FCA still insists that asset managers destroy acres of forest with pages of pointless disclaimers in 4-point print. Talking Pictures, the free-to-air TV station also puts disclaimers before some of the programmes from the past that it shows, noting that the sexism/racism/dishonesty reflects the mores of earlier times. But oddly there was no such disclaimer on the recent showing of a Dixon of Dock Green episode from 1954 (Pound of Flesh, about an unregulated moneylender) where the avuncular hero played by Jack Warner says to camera: ‘You know part of a copper’s job is knowing when not to interfere. When you’ve been walking the beat a few years you’ll know when to turn a blind eye and let things take their course. If I arrested every bloke who socked his wife, I’d be working overtime.’ Today, the police might still think that but at least they’d never say it. In public at least. The Matrimonial Causes Act 1878 helped victims of violence in marriage to obtain separation orders if their husband was convicted of aggravated assault, but violence was not treated as grounds for divorce until much later.

Film and pensions: how things change

The Smallest Show on Earth was a film which relates the story of an attempt (which failed) to restore an ailing cinema, where the supportive usher sets fire to a neighbouring cinema to improve its competitive position, ie create a monopoly. It bears some relationship to the creation of pension oligopolies to comply with regulatory pressures. Despite the arson, the cinema eventually closes, and Percy Quill (Peter Sellars) the projectionist gets some redundancy money. He declares ‘I shall invest my emolument in some small pension. Before I spend it in other ways.’ The owner, played by Bill Travers, responds ‘I think that’s very wise, Percy’. He couldn’t say that now of course, it being considered to be advice.

Robin Ellison is, among many other things, the chairman of the College of Lawmakers, a retired pensions lawyer, a visiting professor in pensions law and economics at Bayes Business School, City, University of London and chair of several pension funds

Read all his blogs for Professional Pensions here