By David Brooks, Technical Director, Broadstone
This is way outside of my realm of expertise and so I won’t comment on the conclusions that they drew.
However, the report did discuss the actions of the Regulators (FRC and TPR). Particular comments included:
The committee has “no confidence in our regulators” and they were “united in their feebleness” with particular criticism of the Regulator’s leadership’s ability to “effect that change”. There was criticism for allowing dividend payments when it was “not comfortable” with these growing with correlated increasing recovery plans.
The Pensions Regulator had been involved with Carillion (it is understood) for a long time. This is understandable as it was a large employer and a significant pension scheme in the Regulator’s universe.
During this time the funding of the schemes deteriorated. However, this happened against a back-drop of the:
1. Global financial crisis; despite this the sponsor was given a decent outlook from the covenant assessments.
2. Increasing pension deficits across the board.
3. A government keen to buy time for employers to put right the deficits in their schemes over a longer period. This is in evidence when the statutory objective to protect the sustainable growth of the employer in funding discussions was handed to the Regulator.
Regulator response
The Regulator, in its response to the report, noted that it was keen to learn lessons but that the leadership now is different to those running the Regulator during the time in question. The Regulator also reiterated its mantra that it will be quicker, tougher and clearer in the future. The Regulator was also quick to highlight the work it is doing in relation to the DB Pensions White Paper and that more change is coming in regulatory oversight.
Politicians politicking
Frank Field is scathing in his assessment of the Regulator’s inability to secure a better deal for members, ability to protect the PPF and the likelihood of little chance of anything useful from the wreckage. Frank Field clearly is not a fan and has not been for some time. A follow up letter issued by Frank Field and Rachel Reeves has challenged the Regulator’s corporate plan and its method of appraising CEO Lesley Titcomb and her possible replacement.
Is this fair?
Mr Field has become a thorn in the Regulator’s side and he sees it as ineffectual in protecting member’s benefits from underhand corporate activities. I don’t know what Field’s ultimate strategy is, but suspect he would like a brand new Regulator with a complete root and branch review of their statutory objectives. We should be careful of what we wish for and careful about how we hold the current Regulator to account, remembering that it reflects the world it operates in and this informs the power and objectives it has.
Much of the criticism is made in hindsight, which is a dream for critics. We need to be mindful of what the Regulator could reasonably have known at the time and the basis of its judgements.
In recent times the Regulator was given the statutory objective to minimise the adverse impact of schemes on the sustainable growth of the employer. This was a ludicrous insertion by the Government which muddied the Regulators focus no end. They were already considering covenant and the delicate balance of funding impacts on employers and affordability. Having this as a potentially contradictory objective gave the whip-hand to the employer and allowed for recovery plans to be extended and contributions to be lower than perhaps would have been the case.
The balancing act of being required to show employers no mercy, but then from 2014 go easy on them, makes reviewing and criticising the Regulator today problematic. Much of the work it undertook in previous years was to help the pendulum swing back towards trustees.
We know now that the company was clearly run in a manner that would have made its sustainability questionable. However, the official reports coming to the trustees did not paint a picture of doom and gloom. The criticism for these failures lie elsewhere.
The Regulator may have been guilty of believing that it was too big to fail; it is a dreadful excuse but perhaps not inexcusable for the Regulator to believe an employer being given government contracts to the bitter end had the chance of survival with ministerial support. Support that we now know was, lacking.
What next?
Frank shows no sign of ceasing in doing what he thinks is necessary to hold the Regulator to account. It is a role he has taken on with relish and whether it is one Guy Opperman should be doing is also debatable. My advice to Frank (which he won’t take, why should he?) is to for him to focus his efforts testing the powers the Regulator has and consider when and how these could be better used or reviewed. The Regulator, in theory, has powers to intervene but has virtually never used them. If we are to fall short of a complete renewal of the Pensions Regulator we need to work with them in determining how and when these powers can be deployed. A Regulator with all the ammunition it wants is the Regulator we need.
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