Kemi Badenoch has set before parliament a white paper on regulation
I had hoped to find out an outsider’s view of the Pensions Regulator but was disappointed.
TPR is not within scope of the recent White Paper.
This seems to be because
“…. some regulatory bodies that have been excluded for specific reasons: (a) Financial services regulators – while these bodies meet our definition of a regulator, financial services regulation and financial services regulators were systematically reviewed via the Government’s Future Regulatory Framework Review and outcomes delivered through the Financial Services and Markets Act 2023. This has resulted in new solutions that correspond to many of the themes in this White Paper, including a new secondary growth and competitiveness objective in terms of the growth mandate, a new cost-benefit assessment system, and a new reporting on metrics by financial services regulators.”
Sadly , there is no mention of TPR in the Financial Services and Markets Act 2023 either.
As my friend Derek observes
The “T” in TPR should be changed to “Teflon”.
He also points that TPR is “missing in action” from Open Finance’s January response to the BDT consultation.
Here however, Open Finance implies that open finance is smart by nature and reforming itself without the need of Government prompting. What need for regulators here..
We would also like to share examples from the financial services sector where we believe good practice can be mirrored in other industries.
Growth
The “new secondary growth objective” is interesting, I hope that competitiveness will come to the fore, but right now the most competitive area of pensions is in its “end-game“. That’s an odd one to create growth metrics for.
The big idea is laid out in a concise introduction that reads like a Demos pamphlet
the UK’s regulatory landscape is frequently held up as an example of international best practice. However, billions of pounds of regulatory costs have accumulated piecemeal on businesses, with some studies suggesting that the impact of red-tape costs could be as high as 3 to 4% of GDP, or £70 billion in 2023 prices. 45% of all businesses see regulation as a burden on their success. They are also increasingly telling us that the regulatory landscape is too complicated, slow and burdensome, with over 100 bodies involved in regulation and limited clarity on roles and responsibilities. This is not good enough
Could we do with a few less regulators? Probably, though that in itself would not make regulation “good enough“.
if the UK economy is to grow and we are to create the technologies that will allow us to improve our productivity, we need to review how regulations are made and administered in the UK. We also have a unique opportunity, following our departure from the EU, to set our own rules and standards, and do it in a way which allows businesses to flourish, investment to grow, and innovation to thrive
We are a few years on from Brexit and it could equally be argued that taking three years to write a paper about setting our own rules and standards, is a failure not just of regulation but of Government.
The Growth Agenda, which seems to dominate the political landscape – both left and right, appears to be in the hands of regulators (to which we can add in TPR)
for the first time, the government is defining what a regulator is. To ensure that regulators are transparent in how they are meeting the Growth Duty[footnote 3], we are also setting standards for regulators reporting on economic growth, introducing clearer measurements of the cost of regulation, and setting the tone for how all who are involved in regulation – be they government, regulators or other bodies – should adhere to the highest quality of service.
The great champion of the people against TPR, Robin Ellison should be rolling his eyes at this point of his reading of the paper.
The Government’s solutions to the problems discussed so far are outlined as three headlines
The UK regulatory landscape requires improvement to encourage innovation, investment and growth
A culture of a world-class service
Getting the fundamentals right on guidance, duties, and accountability
If these are manifesto pledges, then they will not be easy to keep between now and the end of the year. Even were Government to remain in the Conservative’s control, but I suspect these are no more than the posturings of an outgoing Government, keen to create a platform for opposition.
Either way, it is disappointing that, after so much has been said from the Mansion House and the floor of Parliament, that pension regulation , gets so little scrutiny. Here lies the opportunity for a new Government , keen to turn the “Growth Agenda” into genuine economic growth.
The Truth is the TPR operates as, and has long had the influence of, a shadow government – but without any of the oversight or accountability, as the follow-up to the LDI crisis (“crisis, what crisis?”) has shown.
Sadly, we seem incapable (despite Horizon and blood transfusion scandals etc etc,) of learning about the perils of the concentration and abuse of power exercised by Government and its quangos.
We have made (in undiscounted terms) around £3Trn of private sector DB pension promises – and these are currently underpinned by around £1,5trn of de-risked assets, largely hedged (physical or synthetic) with UK Govt gilts.
TPR, with cover provided by the actuarial “profession”, has exercised significant influence over the investment approaches and asset allocation of £2 – £3trn of private sector pension assets for around 20 years – for people with a background and mindsets better suited to regulation, governance and admin, exerting directional influence over “investment” on such a scale was not something they were skilled to do. Investment is difficult.
Hence resulting in a de-risked and dis-invested economy.
But here’s the thing, if TPR now decides that schemes should re-risk, even back to say a modest 60:40 gilts:equity balance (ie the reciprocal of the traditional 60:40 growth:bonds model), then our economy would be tilted back towards a growth model (if TPR decides so). Even a tilt of say 10% of the DB assets into growth, would see £200bn – £300bn directed towards growth. Colossal amounts of firepower.
While all other parts of Government are scrapping around for the odd miraculous £1bn of spend or cuts, TPR exerts directional influence (dialling up or down growth) over hundreds of £billions with apparent impunity or oversight?
Now for the problem – having sold the family silver (ie the £2trn of growth assets) since 2004, loading up on bonds and gilts, the DMO can’t really permit Schemes to find their natural risk/reward related balance of assets. Previously in the shadows and acting without oversight, it is at least some small consolation of the LDI debacle (TPR – ‘ we had no idea what was going on’) that we are taking a step forward so that at long last Treasury is aware of TPR’s firepower and it is bringing some ministerial oversight into the activities of TPR. Unfortunately they are deciding (for political reasons we can understand) to still keep TPR’s activities in the shadows. Hence the deliberate exclusion of this most powerful of Regulators from this important review into the role and influence of these regulators.
Remember – you can still go to jail for putting members benefits at “risk” – i.e. by investing, and the application prosecutorial hindsight by TPR. Again, looking at Horizon – the Post Office had a unique ability to self-prosecute its own Post-masters, and we are reminded of the perils of power in the wrong hands, operating in the shadows.
I attended Professional Pensions Live event in London today, the first speaker was Nausicaa Delfas. Unfortunately her session was curtailed due to a medical emergency in the audience, but her speech appeared to contain nothing new of note: emphasising a ruthless determination to improve the outcome for savers by particularly focusing on improving trustee skills in smaller schemes. On the General Code, she did say that she saw TPR’s role as like that of a critical friend encouraging better behaviour. While I may have been distracted by the developing medical event, I don’t think she said much of relevance to DB or any recognition of the points made above by Jnamdoc. Although I guess now the DB Funding Code will not now be able to be published until the Autumn at least due to the election.
That both TPR and the FCA were excluded from the Regulators Review was noted in a later session, and throughout the event regulatory change was repeatedly identified as a challenge to the efficient running of pensions schemes. In his usual style, Robin Ellison suggested the problem should be solved by the abolition of the post of Pensions Minister.