Neil Bull

I read the following press release from the Pensions Regulator with a mixture of incredulity and delight. I find it hard to believe that this is the same Regulator which allowed a blog to be published in its name including these paragraphs.

One potential innovation proposition – which straddles both DB and DC – needs very careful thought: a possible new offering to pay DB pensions to DC savers who transfer into it. We can see the potential in supporting the development of a new option for DC savers at retirement.

We, other regulators and government are continuing to consider whether a solution like this one could be supported, and we would not expect the market to develop further until this question has been resolved.

I am delighted that Neil Bull, TPR’s new Director of Market Oversight, can speak with such concision and passion about how master trusts can develop to do just such a thing.

Here is what the Pensions Regulator said yesterday (my bold).

The Pensions Regulator (TPR) announced today it is evolving its supervision of master trusts to focus on investments, data quality and standards, and innovation at retirement.

Neil Bull, TPR’s Executive Director of Market Oversight, told an audience of master trust chairs of trustees, trustees, scheme strategists and scheme funders at a TPR event the move would see master trusts become the ‘gold standard for pension provision‘.

Speaking at the London event, Neil said:

“Value has to be the guiding light for all that we do. For our engagement with master trusts that means: A focus on investments. A focus on data quality and standards. And a focus on innovation at retirement.”

He explained the shift follows the success of the master trust authorisation and supervisory regime, which resulted in high levels of governance and administration for master trusts.

Neil added he wanted master trusts to see their relationship with TPR as a partnership, which mitigates harms, identifies opportunities for savers and delivers value.

And he called on master trusts to candidly share their thoughts so TPR can explore their concerns and build sophisticated evidence bases to understand the bigger picture.

The evidence base

Last month, Scottish Widows published evidence from 1500 of its “savers” as to what they wanted from their workplace pension. ” 80% said they wanted a product which provided a guaranteed income for life“. The report was entitled “Decumulation – understanding the needs of the nation” .

For getting on for a century, Britain has acknowledged that the best way of guaranteeing an income for life is a pension and – unless the covenant for the pension is the taxpayer, that the pension has to be guaranteed by funding.

There can be arguments about the quality of the covenant from a sponsor who tops up the funding but there can be no argument that over the long term a fully invested pension scheme will provide better pensions than can be achieved through the purchase of annuities.

Where a sponsor can be found which is seen as fit , proper and willing to pay pensions, that sponsor should be applauded.

To me, there is no question that DC savers should not be offered the option to convert to a DB pension and – provided that pension offers the security to members that can be expected from purchasing an annuity, it should not compete for member’s money on a level playing field.

That the sponsor of such a pension provides capital backing rather than the anticipated cashflows arising from a trading business is immaterial to the pensioner or to the pension sponsor of last resort – the PPF. What matters is that empirical analysis confirms the likelihood of future support above a certain level. The Pensions Regulator has confirmed what that level is and consequently there is no reason why an invested pension scheme, enjoying the long term growth opportunities encouraged by the Regulator, should not offer better pensions at equivalent security to annuities.

Further evidence

I have been socialising the idea of using a pension scheme to convert DC pots to provide DB pensions for the past nine months. It has been met enthusiastically by master trust funders and trustees and in tests with potential members, it has got the same levels of approval as suggested by the Scottish Widows research. In other words, given the opportunity to have a scheme pension paying more than an annuity with equivalent security, around 80% of people would say yes. These are default levels of approval.

A lack of evidence from TPR

Elsewhere , the author of afore-quoted blogs spoke to pension journalists about Pension SuperHaven, a retirement product that converts DC pots to DB pensions that

As we work through with other government bodies to determine whether this product is a pensions product and if so what protections it requires, we are not in a position to confirm that this model offers sufficient saver protection at this point. We would not expect individuals with DC savings to transfer into this solution.

That was in April. I have yet to see any evidence from the Pension Regulator to support their expectation. We have evidence from the OECD, Scottish Widows, Aon and other sources to suggest the opposite.

It is now time for the Pensions Regulator to lift the planning blight that such remarks cause. Either it is in the business of supporting “innovation in retirement” or it is not. Master Trusts can either become the “gold standard for pension provision” or reman high value for money savings schemes.

The Pension Regulator says it has shifted its position, we have heard the same from Rachel Reeves surrounding the Government’s attitude to planning and regulation.

It is right that those at the forefront of providing innovation are heard and that they are not subject to the planning blight that has created a quiet graveyard in pension innovation.

Putting the Pensions Regulator to the test.

Over the next few weeks and months, the new Government intends to get on with it. Rachel Reeves could not have been clearer yesterday that she intends pension funds to help in Britain’s growth recovery. This will require money to be invested in long-term assets rather than in short-term debt instruments.

I reckon this means that pension schemes must stretch their time horizons beyond the end-game of annuity buy-out and beyond the target date of a DC lifestyle program.

Pension schemes, including master trusts, should be able to pay pensions. We have found a way to embed a DB pension arrangement within a previously DC master trust so that this can happen.  We respectfully ask the Pensions Regulator to allow us to get on with the job.