This morning, I posted a report of Nick Lyons’ Church House speech when he called for pension schemes to approach the future with confidence. He looked forward 50 years to a fully funded state pension and in the short term to pension schemes increasing allocations to growth assets, including illiquids.

One pension trustee who shares Nick’s views is Jnamdoc, one of the most precise and prolific commentators on this blog. He has contributed this comment on my recent blog “Is the Pension Regulator excluded from smarter regulation”. Jnamdoc is not the only contributor smarter and more articulate than me, but he is front of mind to me this morning.

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 (i.e. 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.