The last 7 days have had me listening for 3 hours to a former executive and the current Chair of TPR and I find myself deflated. Here is a former TPR worker on my comments about David Fairs last Friday.
I’d suggested we might do better with artificial intelligence, a feeble response to his demand that I lay out what I’d do with Brighton. He had continued “Why didn’t he say that? Or indeed you?” . He followed up with a knock out blow which has got me thinking as I watched Liverpool get humiliated by Plymouth Argyll. These are the words that landed the blow.
What is needed, as Torsten said, is the right analysis and then razor-sharp solutions.Vague statements get nowhere.I do agree that getting the objectives straight is vital too, assuming someone has something to do.But I doubt the problems of the UK are at the door of regulators, or even mainly so.
Sarah Smart went to the Pensions Regulator with every intention of changing it. She has brought about diversity , got a decent CEO in and done what she can to change TPR but she hasn’t gone as far as she would like and I had hoped.
But the people who are at TPR are not bad, indeed they are working to precisely the strategy that underpins TPR. This blog does not blame TPR people for its position, it blames the pension industry for getting it there. Some are arguing we need to dismantle the regulatory framework which like Bruegel’s Tower is in a mess.
Andy Haldane’s view of Regulation is not specific to TPR – it’s published in the FT this weekend and it’s fun. He suggests that we might pay regard to the Trump approach to regulation.
The instincts of the new US administration are to raze the regulatory tower to the ground and only then to build back on a needs-must (or needs-Musk) basis. By design, this scorched-earth approach delivers a system shift in culture and practice. It eliminates the deadweight costs of regulatory overshoot at the risk of undershoot.
I had facetiously suggested that we could use common sense and artificial intelligence to replace financial regulation. It was the kind of nonsense that comes from someone not fully involved with the business of regulation. Haldane has worked in the Bank of England and knows more than I.
What are my razor-sharp solutions? I don’t have them.
But this is where we can call upon the thinking of Torsten Bell and get his wit sharpened with the thinking of those who read this blog and make such great comment.
Whether it be the razor sharp analysis of TPR’s publications of DB funding (Keating and Clacher) or the speech from John Hamilton at Melton Mowbray there is analysis out there and my correspondent is one to tell us what can be done and when.
Here I believe we need to help the Pensions Minister. We cannot change things by institution, we must be a wish to do things differently. Sarah could not change things because she had no help from outside, she needed it from DWP and Treasury and those organisations needed there to be help from the pensions industry.
We cannot expect change to come from another Government institution of change. As Haldane points out
to believe the solution to regulatory proliferation is to create a new regulatory agency is gravity-defying logic.
Right now the pensions industry is waking up to the fact that it has been in the grip of de-risking and the low dependency that has become the aim of most DB pensions. Although schemes are reporting better funding levels , they actually have less money to meet the payments they are due to make. Sooner or later, it will occur to the pensions industry that they are worse off for having sold up in October 2022. While some schemes in LGPS are closing in on or at 200%, the private schemes, who have frozen in terms of money promised, have seen little celebration for the success of better funding.
The reality of DC is that it is not promising a replacement of DB promises, it is not offering a defined benefit (unless you count an annuity a pension).
We need a change of attitude that sees pensions lauded as superior to pension freedom, the investment of both accumulation and decumulation funds and the belief that running DB on (or even reopening it) is preferable to closure.
This was the world I am old enough to remember, a world that persisted through the second half of the 20th century.
We do need to find razor-sharp solutions to the problems that have dragged back pensions over the 20 years of the Pension Regulator’s existence. These solutions do not come from pulling down the regulatory Tower of Babel, they come from beyond Babel. We need to cleanse what we are doing and deliver through the Pensions Minister a new way for TPR to work.
TPR is full of good people, it needs a new way forward and that needs come from us.
“But I doubt the problems of the UK are at the door of regulators, or even mainly so.” TPR
“In essence, regulators are requiring the USS [and many other DB schemes] to behave as if the fund could be closed down at any moment while still meeting its obligations with as much certainty as possible. To do that is inordinately expensive.”
Baron (Mervyn) King & Sir John Kay
“Lord Wolfson, chief executive of retail group Next, had warned the BoE about LDI, describing the strategy as a ‘time-bomb waiting to go off’. Professor Clacher and Dr Keating’s contention is similar…
By contrast, TPR appears to consider itself victim of the assault on the gilt market, not its perpetrator.”
Centre for Commercial Law Studies at Queen Mary University of London
TPR is still in denial, then?
A regulator captured by the insurance industry (who stand to gain most from all the
buy-ins and buy-outs over time) along with supine support from many actuaries and accountants, for whom closing down DB pension schemes against the wishes of many members still seems a good business for such ‘professionals’
to be in?
Henry,
Not to be disheartened.
This is exactly the reaction that was expected.
It’s not surprising, the regulatory mindset will seek even more rules and regulations to fix the problem that until recently they refused to accept even existed, never mind accepting any culpability for. Denial, now razor sharp anger, and eventually acceptance about the scale of the damage, and then solutions can follow.
It’s taken 20 years to strip our once thriving pension infrastructure of growth and ambition, with the enormous and directly contaminant effect on our economy. It will take as long with many steps to repair the damage, but pensions and investment have both scale and Term, and using those we must be confident that it can be done.
The next steps on Policy are urgent and critical – in terms of to stop digging of the hole, and ASAP – the forthcoming Pensions Bill MUST address this. At least the issues are in view now, and there is a growing cohort of thinkers and doers on the case. But expect the backlash.
There are well considered set of next steps to support the much needed change in direction. But the first is an acceptance and embedding of growth and a growth mindset within the Regulatory community and the industry of advisers. We’ve created so many barriers, dams and divert to the risk from the flood of the river, that we’re left with a near a barren landscape. The greatest risk by far to our desire and ability to pay on pension promises is a grossly under invested low productivity economy.
The role of Insurance will be absolutely critical in this, but (only) as an enabler of risk, not as the captain directing the ship. And aligned with this we also need a much stronger PPF; it’s now got scale and respect for its professionalism, and it can and always should have been an enabler of investment and growth across the many well functioning DB schemes. It should also act as a consolidating manager of the many hundreds of very small or zombie schemes, providing scale and professionalism. Yes, we need a stronger refocused PPF, and less Regulation however challenging that will sound to some.
So, don’t be disheartened Henry, we are at that fork in the road, and the road less travelled will not be a smooth one. We can start bit by bit to release the dams and diverts, and to let the river flow, once again. We must.
Having lost my DB Pension at 42, through a combination of redundancy, a recommendation to convert it to a S28 buyout, and the financial crash of 2008, aged 61, I determined I would save for retirement and NOT rely on Annuities. (I had researched them in 2007 when my wife reached SPA). Having only a relatively small amount in the pot, I put it all into a SIPP and added to it until age 70 then took 25%, which I put in the ISA and commenced drawdown. Below is a summary of the SIPP Drawdown account.
Given I was never in receipt of as much as £20,000 per annum our needs are modest.
With a State Pension of approx £240 pw plus a couple of monthly pensions and attendance allowance, I am relatively comfortable. In fact, my income is now more than I ever received as an annual salary during my near 53 years working life. I have no grand children and 2 well set up sons. With the valuation of my house (mortgage paid off 20 years ago with an endowment policy), my sons could end up liable to IHT, so spend their inheritance and enjoy life while we can!!
Finally, if I sold all the undermentioned stocks and put the money to purchase an annuity, I would receive about £1000 per annum. Do you see why I do not rate annuities?
ANNUAL
Stock Holding Price Value Yield INCOME
Co-operative Group Ltd 7000 £1.03 £7,231.00 10.59% 770
Final Repayment Notes 11%
2025
Henderson Far East 1500 £2.25 £3,367.50 10.96% 372
Income Ltd (XD)
Ordinary NPV
R.E.A. Holdings plc 6500 £0.75 £4,875.00 11.76% 585
9% Cumulative Preference
GBP1
£15473.5 Total £1727
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