Nicola Parish – Eversheds Annual Pensions Conference
Thursday 7 December 2017
Good afternoon everyone and many thanks to Francois for asking me to speak to you today.
I’m aware it’s been a long day and that the only thing standing between you and a glass of mulled wine and a mince pie is my speech, so I don’t intend to keep you long.
But I am glad of the opportunity to speak to you today and to share what’s been happening at TPR, what our current focus is, and what our priorities will be in 2018.
I sit on the board at The Pensions Regulator (TPR) and my role is Executive Director for Frontline Regulation, which means I’m responsible for all the casework at TPR, unless it relates to automatic enrolment. So what I’d like to do this afternoon is talk to you about how TPR is changing as an organisation. And then I’d like to talk through a few real case studies to show you what those changes mean in practice for our regulated community. And I will finish by sharing a few key areas that TPR will be focusing on in 2018.
First, I’d like to talk about TPR Future.
It was at this conference last year that Lesley Titcomb, our Chief Executive, announced that she and our Board had commissioned a piece of work called TPR Future. The purpose of this work was to take stock of the enormous number of changes that have taken place in the pensions industry over the last decade, and make sure that our regulatory approach is the right approach for the next decade.
It’s a big project, involving our stakeholders, our staff and almost certainly some of you in the room today.
TPR Future is still in progress, but you will have already seen a shift in our approach.
The first phase of the programme was a thorough, independent review of the risks and opportunities for TPR over the next ten years. And this review provided valuable insight. Our stakeholders said they wanted us to be clearer in our expectations of those we regulate, quicker to act if we see something going wrong and tougher on those not doing the right thing.
So it was this first phase that led to us evolving into a clearer, quicker, tougher regulator. And you may have already seen that in action.
I notice a recent article by our hosts, Eversheds, which said that TPR is “committed to intervening in more cases than the past”, and that when we do get involved, we are doing it in a “more interventionist, rigorous and proactive manner than before”. And this is an accurate reflection – we are identifying risks earlier, we are intervening more and we are being more proactive in our casework. I’ll come back to that in a moment.
We’re now into the second phase of TPR Future, which is the design phase. So we’re looking at different regulatory approaches, and we’re testing them.
For example we are looking to broaden the range of tools and techniques that we employ as a regulator. We want to move the point of interaction with schemes forward in certain cases.
This may result in some schemes having a more active, ongoing relationship with us – rather than centering everything around the three year valuation cycle, as it currently is in the defined benefit (DB) world.
In the defined contribution (DC) world, one example of us testing our regulatory approach is thematic reviews – and we have two already underway, one looking at value for members and the other at pension contributions. We are considering others, for example on investment policy, and how schemes are dealing with cyber risk. These thematic projects may well cover all types of scheme: DC, DB, master trusts, and schemes of all sizes.
We are also looking at the best way of increasing our regulated activity across that whole range of schemes both by sector and by size, and to target out communications better. We know that bigger schemes and smaller schemes have different needs, and at TPR we need to reflect that in our communications.
And finally, we’ll move into the third phase of TPR Future, which is implementation. This phase will begin in the Spring of next year.
So let me give you a few examples of where we are being clearer, quicker and tougher.
The first example of where we were being clearer was in our Annual Funding Statement in which we were clearer about our expectations on valuations.
A second example is our 21st century trustee work. We launched our communications campaign in September, and we are being much clearer about what we expect from trustees.
And thirdly, we are improving our horizon-scanning function to identify risks earlier, and, as I mentioned, in our casework we are intervening more quickly and more often. The best example I can give you there is in relation to funding – where we’re no longer going to wait for prolonged discussion to agree a valuation. And we are moving to use our powers more quickly.
Now I’ll move on to talk more specifically about our approach to enforcement.
The first thing to note is the shift of resource that has happened in TPR. Two years ago, about 16% of our total resources were in frontline services, and now we’re at 30.5%, so almost double.
This reflects the importance and the emphasis we are putting on frontline regulation.
You’ll be aware that there has been some discussion in the industry about whether we need any new powers, but for me the most important thing at the moment is that we use the existing suite of powers that we have.
And this means that recently we have used some of our powers either for the first time, or have used them in a new way.
The first example is our criminal prosecutions of recipients who do not adequately respond to our section 72 notices. A section 72 notice is a notice served under statute and they require the recipient to send us named information within a given deadline.
Where recipients don’t respond and do not give us the information on time, we have the power to bring criminal proceedings and that’s what we’ve done. You may have seen that we brought proceedings against individuals and against a firm of solicitors. We served the firm with a section 72 notice, as part of an investigation into a suspected pension scam. There was no suggestion that the firm was involved in the scam, but they had documents that we wanted as part of our investigation.
The solicitors didn’t outright refuse to come up with the information, but we had many excuses over a prolonged period of time and it was for that reason that we decided to issue our criminal prosecution.
Being able to obtain information using section 72 is a key regulatory tool for us, and those that receive a section 72 and don’t comply can expect a tough response from us.
You may also have seen that we are prosecuting Dominic Chappell (purchaser of BHS) for failing to comply with a section 72 notice and that trial is due to be heard in January.
You’ve had a whole panel on BHS earlier today, so I won’t go into detail on that case now, but it’s clearly one example of where we used our anti avoidance powers. For more about how our actions in the BHS case – what we did, and why we did it – we published an intervention report in June, and that’s available to read on our website.
But it is worth pointing out that we believe the settlement reached with Sir Philip Green is a strong outcome. For the vast majority of members they will get benefits higher than the PPF, the same starting pensions as under the BHS scheme. Some also had the option of a winding up lump sum.
There is always a balance to be struck when considering settlement. Our door is always open to sensible settlement proposals. Settlement brings members certainty and avoids a protracted legal challenge through the courts.
In the BHS case, we believed there would be a legal challenge to pursuing our anti-avoidance powers, which can lead to several years of delay and of course, however strong your case is, the outcome is unpredictable.
You’ll also have seen that we settled another anti-avoidance case recently – Coats – in the summer, and in settling that it took the total recovery for schemes through use of our anti-avoidance powers to well over £1 billion.
These anti-avoidance cases are difficult cases, they are complex cases to run and they take a lot of resource; but we’re not going to shy away from bringing those actions, because we believe we can get strong outcomes for members. They also send a strong message to employers who may be thinking of trying to avoid their pension obligations.
Moving on to a different case, another household name – Hoover – where for the first time we used our power to appoint a skilled person.
The employer and trustees were unable to agree their valuation, despite having heavyweight advisers on both sides. They couldn’t agree on what the deficit repair contributions should be.
We appointed a skilled person to report on what was, and was not, affordable for the employer. This had the effect of breaking the deadlock that had been going on for some time. And actually then led on to an analysis of the solvency position of the employer. That culminated in a Regulated Apportionment Arrangement, or RAA as they are referred to, which enables the employer to be separated from the pension scheme. And the scheme goes into the PPF.
There are a very strict set of criteria which must be met before we will approve an RAA. And these regulated apportionment arrangements occur under difficult circumstances. They are a last resort, and they are rare. We have only approved two this year – and for good reason.
The inevitable insolvency of the employer is one of the criteria that must be met and it’s an important one, because it means that it prevents employers being able to just dump their schemes into the PPF.
Finally, on the subject of our powers, I want to mention section 231, as it’s one that we are asked about a lot. That’s the power to impose for example, a schedule of contributions or a recovery plan if we’re not satisfied with what has been agreed by the trustees and employer or if they can’t agree.
I can confirm that we have recently issued a warning notice in respect of Section 231. This is an ongoing case and I can’t speak about the specifics - other than to say that it demonstrates that we will intervene if we see a scheme being treated unfairly. We do have other potential cases underway.
Section 231 cases are complex and the power must be exercised by TPR’s Determinations Panel, a group of people separate from the investigation. We have to put forward a case to them that it is the right thing to do. Their decision can be challenged in the Upper Tribunal and beyond. The Warning Notice is only the first stage in an often lengthy process and it may result in settlement before it reaches the Determinations Panel.
I want to move on now to our compliance with the basics work.
It’s a corporate priority for TPR and is another example of where we are using powers for the first time.
You may have spotted in our latest enforcement bulletin that we issued 37 fines to trustees in the last quarter – that’s between July and September this year – for not sending in their scheme return on time. We also issued 18 fines for not submitting a chair’s statement; and we issued three improvement notices to trustees and third parties for not agreeing their recovery plan on time.
We’ve been accused by some commentators of being heavy handed in our new approach, or abandoning our “risk-based” approach to regulation. The view put forward is that these failings are small and that they don’t present any risk to members.
Let me be very clear – a regulator can only operate in an effective way if it has the information from its regulated community – we need this information to monitor our landscape, to identify risk and to target our communications. So we don’t see failing to send in a scheme return as a small failing.
It may well be that not sending in your scheme return is symptomatic of wider failings within the governance of the scheme.
Forward look to 2018
So you can see that 2017 was a busy year for TPR and it’s likely to remain so in 2018.
As always, we’ll publish our full list of Corporate Priorities at the start of the next financial year in April, but for now I can highlight three key areas that we’ll be focusing on:
The first is delivering the new master trust regime. We’re delighted that the government has published its draft regulations. We’ve been expressing the need for extra regulation for master trusts for a long time. Since 2010 there has been a 2,000% increase in memberships of master trusts, largely driven by automatic enrolment. There are now 7.1 million members in Master Trusts. So it’s vital to ensure those savings are protected. Authorising master trusts and setting up the ongoing supervision will be a big and welcome focus for us.
TPR Future will continue as we pick up the pace on testing regulatory approaches. And in Spring we’ll begin fully implementing all the recommendations that come out of that design phase. You’ll be hearing more from us as we move into that stage, and what that means for you.
And finally, promoting good scheme governance – including record-keeping and data. I haven’t spoken extensively about governance today, but driving up standards across all schemes – DB, DC, master trusts and PSPS – remains a key priority for us. (We heard from the Minister earlier about plans for the pensions dashboard.) Good quality data and record keeping will play a crucial part in allowing the industry to build a worthwhile dashboard that the public can trust and believe in. So that, as well as driving up standards across governance of all schemes, will be a priority for TPR.
I hope that gives you a good feel for what’s happening at TPR – why we’re changing and what it means for you and all our regulated community.
We are seeing more and more attention paid to the pensions industry – from the media, from government, from small employers, who have never had to provide pensions before, and from new savers who are being enrolled in a scheme for the first time.
And this is a good thing – it hopefully means that more and more people will begin engaging with their pensions and long term savings. But it also means it’s more vital than ever that our industry is secure and that pension savings are safe.
And on that note I will stop to let you enjoy the wine and mince pies that Eversheds have laid on for us. Unless of course you have any questions for me.
Executive Director of Frontline Regulation