I wrote a blog on Sunday – Sunday Morning- John Plender and a song to the moon. 

It has had brilliant comments on it- as usual the comments are rather better than the blog and do John Plender’s article in the FT full justice.

The first is from Byron McKeeby, an old friend from Glasgow or thereabouts

The Plender article says “If a [DB] scheme is passed to an insurer … such transactions …
entail substituting the backing of the well-funded Pension Protection Fund for that of the industry-funded but MORE GENEROUS [emphasis added] Financial Services Compensation Scheme.

I’m not sure some commentators on this series of blogs – Peter Beattie, for example – would agree.

Plender also goes on to suggest the robustness of the insurance industry’s regulatory capital requirements is open to question since insurers may transfer much of the risk to reinsurers in offshore tax havens where solvency requirements can be less stringent.

Here is Derek Scott- known to many in pensions for his work on financial reporting and his trusteeship of transport based pension schemes (now based in Fife)

I posed a question about the use of reinsurers on this morning’s Zen/Y webinar on The Evolution Of Innovation In Insurance From Lloyd’s Coffee House To Lloyd’s Lab.

I was not encouraged by an answer that the Prudential Regulation Authority is apparently scaling back its monitoring of capital adequacy because the regulator has such confidence in the participants.

Here is Jnamdoc, the fiery Pict from Perthshire

Wonderful. So at a time TPR is endorsing / encouraging the large scale transition of say £250bn-£500bn of pension obligations due to working people to an oligopoly of often opaque bodies (in terms of where the ultimate risk is carried), the receiving regulatory body is scaling back its oversight (no doubt that’s in case they create some necessary caution and friction on the bulk annuity duckshoot).

You really couldn’t make this up.

And here is the Pension Oldie commenting on another blog, this time about the rising cost of advisory fees and value for money

I was struck by the cost to the sponsors of the PLSA Conference last week and also the indication of the thousands of people employed in the “pensions industry” only a small proportion of whom were present. I became very uncomfortable when I realised that all this was effectively being paid for out of the pension savings of the British population either directly or by their employer.

Further I realised that the regulatory bodies were being encouraged and instrumental in promoting the industry with little real value to the individual. We can of course point to the rogue financial advisor, trustee, or the underperforming fund; but does forcing high cost bureaucracy on everyone really solve the problem? Who benefits from the £30 per year per member that it costs to produce and publish an Implementation Statement, for example?

The introduction of private equity into what is essentially a service provided by an individual is certainly adding to the cost of that service/advice, let alone increasing the seemingly unchecked temptation to “sell on”.

My New Year resolution is to challenge all administration costs and to focus advice only on areas where there is clear uncertainty about the effect on benefits from alternative courses of action. Where we do have to engage advisors we will regularly reconsider appointments individually and seek alternative proposals/quotations to consider the value offered to Members.

Jnamdoc is quick to respond

Yes, agreed totally. I declined a recent end-of summer networking event when I found out that of the 40 invitees only 2 were member or employer nominated Trustees, with the majority being partner / director level IPTs or consultants. 1:20 is not a good pay-back ratio!

Same at a recent end-game conference, of 150 attendees only around 9 were actual (non-professional) Trustees.

The IPTs are of course another creation from the happles TPR foisted upon the schemes (this was explained to me as the way forward some 15-18 years ago by a TPR founder, as pesky member centric Trustees didn’t always do what they were told to do by TPR)

It is abundantly clear that the industry views the £1.5trn as a feeding trough, into which they are all defining new ways to get their ‘market share’, as they refer to it.

Byron McAbee should be granted the final word

I’m not sure I’d call TPR hapless. Nice, superannuated work (for them) if you can get it.

And surrounded at times it seems to me by sycophantic professionals who seem to know all the ways and means to hike fees.

I’m reminded of a 2020 paper by Deborah Mabbett, Professor of Public Policy in the Department of Politics at Birkbeck, University of London.

In “Reckless prudence: financialisation in UK pension scheme governance after the crisis”,  Professor Mabbett suggests

“that derisking in the UK is more endemic than in other comparable pension systems. At first sight, it is surprising that a system with no quantitative rules and substantial elements of trustee and actuarial discretion has produced this bias towards precautionary behaviour.

While [she] cannot offer a systematic comparison, notable features of the UK case include the weak representation of member interests in scheme governance, along with an assumption that employers [and/or their professional advisers] who favour ‘rewarded risk’ investment strategies are exhibiting moral hazard.

The structure of governance is such that those who have a clear interest in outcomes are sidelined, and technical calculations are
relied upon.”

For the uninitiated, “moral hazard” is an economic term that describes a situation where a parties [eg pensions professionals, regulators] take on more risk [aka ironically as de-risking] because they don’t face the full consequences of their actions.

This can happen when one party has more information than another, or when one party doesn’t have to bear the costs of their actions or recommendations or regulations.