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Anthony Raymond at Association of Pensions Lawyers Northwest Conference

Tuesday 15 May 2018


Good afternoon everyone. First of all I’d like to thank you for inviting me here today. I’ve been acting Executive Director for Regulatory Policy for nearly a year now but my background is entirely in the legal field, so it’s good to be home. There is nothing like being faced by a room full of pensions lawyers to concentrate my mind.     

Most of you are involved primarily with DB pensions, so my talk today will concentrate on that area, and in particular the white paper. The white paper raises challenges and questions for us all rather than handing us a box of ready-made solutions. So I’m grateful to the APL and to the events committee for asking me to speak at your conference – it gives us a chance to meet and thrash out some of those challenges and questions.

Then I’d like to touch on TPR’s work on scheme governance too, which of course affects all types of schemes, not just DB.

Firstly, let’s talk about the white paper.

The proposed measures are primarily aimed at clarifying the rules and expectations. They are not about making fundamental changes to the existing system. At TPR we welcome that – we believe the current framework is working well for the most part. But we have been calling on government for more effective tools and we believe that the white paper will give us that. And they fully align with our drive to be a clearer, quicker, tougher regulator.

I have no doubt you’ll have heard about, and may and have experienced, us being quicker and tougher in our approach. You may even have a question or two about it for me later, which I look forward to. We make no apology for having high expectations of our regulated community - it’s what pension scheme members need and deserve.

More and more people are being enrolled into work place pensions, thanks to automatic enrolment and it’s vital that their savings are well protected. It’s important that all pension savers, both the newly enrolled and the more mature members on the final stages of their savings journey, can have confidence in those of us who are tasked with protecting their money.

We believe the proposed measures in the white paper will strengthen the regulatory framework, and will further protect their money.

Let’s look at scheme funding first. Our current funding powers - section 231 of the Pensions Act 2004 - are poorly defined in legislation. This is one area where we asked the government for improvements to our powers.

In particular, the current lack of clarity as to what is a ‘prudent’ funding strategy and an ‘appropriate’ recovery plan makes it difficult for us at TPR to set clear expectations and has led to different schemes taking different approaches to funding.

The proposed changes will allow us to set much clearer expectations of employers and trustees. Crucially, they’ll also allow us to build a clear evidential case to take enforcement action, if necessary.

The white paper shows that the government intends to legislate to require trustees and sponsoring employers to comply with the funding standards which will be set out in an updated code of practice. It also intends to legislate so that we can take action in the event of noncompliance with these standards.

So this will require changes to our current powers, and will strengthen our ability to enforce a recovery plan and schedule of contributions where trustees and sponsoring employers are unable to agree a valuation, or where their plans are not in line with our expectations.

Having a strengthened framework in place, particularly if it’s generally agreed by industry, will provide the yardstick that ’prudence and appropriateness’ is measured against. The framework will be strengthened further if these areas of the DB funding code are made binding to create a more overt ‘comply or explain’ regime.  It will mean a reversal of the burden of proof - trustees and employers would need to convince TPR that they are compliant, rather than TPR needing to prove they’re non-compliant.

And, since TPR will be much clearer about its expectations, those who wilfully fail to comply with the clearer funding standard will see us be quicker and tougher in the use of our funding powers.

Moving on to our anti-avoidance powers.

Our current powers enable us to act against those connected and associated with sponsoring employers who risk the retirement outcomes of pension scheme members. But again, there were a few areas that these powers could be improved and we’ve been vocal about that. So we welcome that the government intends to review our contribution notice and financial support direction powers to improve how they work in practice.

The fact that the recipients of CNs, including individual directors, may in future be subject to high punitive fines will further strengthen the deterrent effect of these powers.

The ultimate sanction proposed in the white paper is criminal prosecution for wilful or grossly reckless behaviour in relation to a DB pension schemes. This will clearly relate to the most extreme cases. And we are working closely with government to develop the proposals in respect of fines and criminal sanctions to ensure that they are proportionate, that they act as an effective deterrent and that they work in practice.

Another set of measures in the white paper which we believe can make a real difference are the planned improvements to our information gathering powers. Again, these will help us be more proactive during our investigations and support our drive to be a clearer, quicker and tougher regulator.

We’ll be able to progress cases more quickly because we could then question people at an early stage which will undoubtedly encourage early dialogue and cooperation. For instance, in complex avoidance cases it would help us seek important clarifications on issues early on, rather than relying on issuing a series of s72 notices.

So we welcome the measures in the white paper. But you can see that much of the finer detail needs to be decided. We know there’s a lot of work still to be done. We are very conscious of the challenges ahead and the importance of getting this right. So we’ll be working not just with government, but also with you, and other stakeholders, particularly on the revised Funding Code of Practice.

It’s essential that the new code is based on the best expert advice and reflects an industry-wide consensus around ‘what good looks like’ and provides useable tools for trustees and employers alike.

We’ll be kicking off with a series of roundtables in the summer, and there will be other opportunities for you to tell us your thoughts, both formally through consultations and informally. 

You may also be aware that the Work & Pensions Committee has opened an inquiry on the white paper, the written responses to which close this Friday so there is time to respond to that if you want to.

The measures from the white paper are likely to appear in a new Pensions Bill some time in 2019, depending on the legislative timetable. As you know, Parliament is busy with Brexit but we’re hopeful of a Bill in 2019.

TPR Future

I’d like to mention TPR Future briefly here, as I see both pieces of work - TPR Future and the white paper working together. The TPR Future programme has seen the development of our new regulatory approach across all types of schemes we regulate – not just in DB, but also DC and PSPS. We’ve done the research, we’ve been through the design stage, we are now beginning to implement the changes.

We are using a wider range of regulatory tools: all schemes will experience some form of regulatory oversight at ever increasing levels of intensity. This will improve our ability to proactively intervene sooner, on a higher volume and wider range of entities through the use of more regulatory activity. But in the DB world, for example, it will likely see us moving away from triennial contact through valuation to more ongoing oversight and account management.

We’ve also stepped up our proactive funding cases. In fact we’ve increased our proactive work by 90% this year to support trustees as they prepare valuations and recovery plans.

We’ve recently published this year’s Annual Funding Statement, which highlights some of the key issues we have identified facing schemes with valuations from September 2017 to September 2018.   

We are concerned about the growing disparity between dividends and deficit-reduction payments and we do expect fair treatment between shareholders and trustees. We expect trustees to negotiate robustly with the employer to secure a fair deal for the pension scheme. And even for schemes with the strongest covenants - we want to see shorter recovery plans if the sponsoring employer is paying big dividends. 

And, since TPR will be much clearer about its expectations, those who wilfully fail to comply with the clearer funding standard will see us be quicker and tougher in the use of our funding powers.

Moving on now to defined contribution schemes.

DC schemes

Although I am not going to spend much time today talking about DC schemes, I do want to highlight our main focus I this area, and one of our corporate priorities, namely the effective regulation of master trusts.  Although DB schemes are significant in that they hold more assets, it is now DC schemes that have a greater number of members. 

90% of people currently saving into a private sector pension are saving into a DC scheme. And the vast majority of those members are in master trusts. In 2010 there were 270,000 members of a master trust.  Today there are almost 10 million members. That’s why it’s so important that the regulation around master trusts was tightened.

The new authorisation and supervision process is progressing well, and we’ll be receiving applications from master trusts for authorisation from October this year.

The new MT regime will have a significant impact on the market - it’s likely that over the next twelve months we will see a reduction in the number of master trusts operating in the market, either because they decide not to apply for authorisation or because they fail to meet the criteria. Indeed we are already seeing that happen - and we are engaging with those schemes to ensure that the members are protected when being transferred to an alternative arrangement.

Moving on to:

Governance and standards of trusteeship

Trustees have a significant responsibility in protecting members’ benefits, and we do expect high standards from them. We know from our research that governance standards are patchy across the landscape. Our goal with our 21st Century trusteeship project is to ensure that all governance is at least ‘good’.

One thing we are particularly keen to see from trustees is that they are active in their consideration of and where necessary challenge the advice they get from external partners, to make sure that it’s in the best interests of the scheme and its members. As lawyers and advisers you should be aware of that. We are reminding trustees that while it’s often the right thing to look for external advice and even outsource various activities, it is they, the trustees, who remain ultimately accountable for running the scheme.

Our clearer, quicker, tougher, approach towards regulation does extend to trusteeship, and we are already taking action against schemes that are not complying with the basics, such as submitting their scheme return, or, in the DC world, the chair’s statement.

We have no discretion on this – we are compelled by law to fine for non-compliance. Trustees must be mindful that completion is insufficient – chair’s statements must be compliant with the regulations in respect of content too.


In summing up, we could say that we’re grappling with some pretty big challenges, but I believe we’re moving in the right direction. We believe that the current regulatory framework is generally sound and working as Parliament intended. It was only 13 or so years ago the PPF didn’t exist at all, for example.

So members are considerably better protected than they were. But both TPR and the regulatory framework need to adapt and change to tackle the risks we face - and I believe we are making good progress in finessing the current system. The white paper has some solid proposals that will strengthen weaker areas and increase accountability for those responsible for running schemes.         

There is clearly still much work to be done– and we will be talking further to you advisers, and to our regulated community, as well as working with government to fill in the detail. Again, I encourage you to speak to us, and to let us know your thoughts and concerns. I’m confident that by working together we’ll create a robust framework that will protect members’ savings in the decades ahead.     

I’m fairly confident too that you’ll have questions for me, so I’ll end here and am happy to take your questions.


Anthony Raymond
Interim Executive Director of Regulatory Policy

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