Good morning. I’m grateful for the opportunity to speak today.
I’ve been CEO at The Pensions Regulator (TPR) for three months, so this is a good and early chance to share my goals and priorities with you.
While I am CEO my primary aim is to do what’s right for savers. Whether they’re a 22 year-old who is enrolled in their company scheme for the first time this month, a middle earner who’s moved around the job market or a retired worker who joined their defined benefit (DB) scheme 40 years ago.
My goal is to do what’s right by all of them. The savers.
So, what can you expect of me, as the new Chief Executive Officer (CEO) of TPR?
Put simply, I’m here to deliver. Deliver the standards savers rightly expect and deliver robust protection for them.
I want savers to have confidence their pensions are safe. I will provide them with the standard of living they want in their retirement.
There are challenges. For me. For our industry. And they are not insignificant. But facing challenges is not new.
I remember very clearly, pre-2012, when I was given the role of delivering automatic enrolment (AE). Automatic enrolment seemed a very big ask.
From where we sit today it seems automatic enrolment was destined to be a success, but we shouldn’t forget the early days. We had agreement from everyone that it was a great idea in theory, but there were plenty of people telling me it wouldn’t work in practice.
“There are too many small employers”. They said. “Too many small and micro businesses. It’s too big a programme. Government programmes always fail”. As 2015 approached and small and micro employers would be subject to AE for the first time, people said to me “there is a tsunami of employers coming”. I described it as a mountain of employers that needed to be climbed. Mountains can be climbed with careful planning and preparation. Tsunamis are always a disaster.
(The below statistics were presented on associated slides.)
So here we are today – more than 10 million new savers from 1.5 million employers. All of whom have been through the AE journey. Contribution have risen from the original level of a total of 2% to 8%.
And pleasingly for a regulator; a compliance rate above 94%.
So, when I look at the challenges facing us now, across the pensions landscape I am convinced we can meet them.
We, collectively, and we at TPR have the experience, the tenacity and the skill.
We have lots of work to do and TPR can’t do this alone so we’ll be collaborating closely with DWP, FCA, MaPS, but also, importantly, with you.
I’m going to show a few statistics here because I’d like to put my next comments in the context of the changing environment. I think it’s really important to recognise how the landscape has radically transformed in the last decade - primarily as a result of two game-changing policies: AE in 2012 and freedom and choice in 2015. These slides show the story of that transformation. More importantly they show the impact this has had on savers, and the culture of saving.
Slides 3 and 4
- There has been an increase in saving among the young (22 to 29-year-olds); the percentage saving has risen from 35% (2012) to 85% (2018).
- An increase among low earners (£10,000 to £20,000) from 34% (2012) to 81% (2018).
- Large increases across all ethnic groups, as here from 53% (2012) to 70% (2018).
- Participation levels increased in the private sector for women from 40% in 2012 to 85% in 2018.
- High levels of participation continue in the public sector, 93 per cent in 2018 for both male and female eligible employees.
Slides 5 and 6
- There are now around 16.7 million memberships in defined contribution (DC) schemes, an increase of 640% since the start of 2010.
2) Freedom and choice - saver behaviour
Let me now turn to freedom and choice or put another way saver behaviour.
Since April 2015, people have had greater flexibility when they come to access their DC pension savings after age 55.
- In Q2 2015, 84,000 people withdrew £1.5 million funds from DC schemes through flexible payments . In contrast, in Q1 in 2019, 284,000 people withdrew just over £2 billion.
Although these figures relate to DC schemes, they do include DB, since DB savers need to first transfer into DC in order to access their pensions via freedom and choice.
There has also been a growth in DB transfers. This despite repeated advice and guidance that - most often - activity of this kind is not beneficial to savers.
The FCA have noted their ‘concern and disappointment’ with the level of DB transfers and will be carrying out work to look into this area. Edwin Schooling Latter from the FCA will be speaking more about this shortly.
Slides 8 and 9
3) Rise of the master trust
Then there is the rise of the master trust.
Sounds like a film, doesn’t it? The size of the master trust market has expanded massively since the launch of automatic enrolment.
More than half of people who have been automatically enrolled into a workplace pension scheme by their employer are saving into a master trust scheme.
- In 2010 there were 270,000 members. Today there are nearly 14 million people saving into a master trust.
- 99.5% of employers using a DC Trust scheme to fulfil their AE duties are using a master trust.
- It’s imperative that these savers are fully protected, and the authorisation and supervision of master trusts is well under way. 39 have filed their applications and six have so far been authorised.
4) DB schemes maturing
Next, DB Schemes are maturing
- 40% of schemes are now closed to future accrual, up from 22% in 2010.
- The number of active memberships has fallen 49% since 2010.
- 1.2 million active members remaining.
5) Rise of fraudster / scams
Finally and depressingly there is an increase in pensions scams and fraudsters.
Statistics in relation to pension scams are difficult to determine. Scams are under reported. It’s hard to be sure of the scale of offending. However, we do know:
- in 2017 a quarter (23%) of UK adults has experienced an unsolicited approach about pensions or investments
- in 2018 an estimated £200 million was lost to pension scams
- according to Citizens Advice, 10.9 million people received an unsolicited pension offer in 2017
- we know that victims of pension scams lose an average of £91,000 each, for some, that amounts to all their life savings
The recent ban on cold calling and our joint advertising campaign with the FCA acknowledges the scale and impact of illegal activity.
We estimate that the campaign has led to about thirty-three million pounds worth of savings not finding their way into the pockets of scammers.
All of this demonstrates the landscape has transformed.
And so this leads me to my three priorities:
1. Focus on the saver
As well as these contextual changes, the burden of responsibility has shifted markedly to the individual. People are now, more than ever, being encouraged to engage, plan and understand their pension. This is a huge cultural change. And it’s why we at TPR must increase our focus on savers.
You may think of these people as members. The industry has typically called them members. But they don’t join a scheme to become a member. They don’t call themselves members. They join a scheme to save for their future.
Which is why I think of them simply - as savers. Individuals who are largely neither engaged nor experienced at managing the pension risk. They are the people who need to be better supported and crucially better protected.
I recognise we must balance our statutory objectives. We have a responsibility to consider the interests of the sponsoring employer and to protect claims on the PPF.
It’s a delicate balance to achieve. But I will be putting an enhanced focus on the saver. This is a reflection of the new landscape.
2. My second priority is delivery
i) TPR Future
TPR Future is the name we gave to the change programme that began in 2017. Which oversaw our quicker, clearer, tougher transformation.
We are a large part through this programme. I’m committed to delivering this change and concluding the transformation.
TPR Future is rapidly becoming the TPR of today.
We have made huge cultural and regulatory changes already. Many of you will have experienced, or certainly heard about, our new approach. And many more schemes will experience it in the coming year, either through one to one supervision or through our proactive regulatory initiatives which will connect with more than a thousand schemes in the coming year.
ii) Long term strategic development.
Turning to the long term.
In the past, it’s fair to say TPR has perhaps waited until there was evidence of wrong doing or a problem before we intervened. That was the ask of us and maybe the approach fitted the nature of the market at the time.
We now need to build beyond TPR Future, and look way into the horizon.
For DB schemes - both collectively and individually, that means thinking about what their long-term outcome is going to be. That will help us and their trustees to contextualise their recovery plans. We’ll be consulting on a new DB Code later this year. David Fairs, our Executive Director for Regulatory Policy, is on a panel later today discussing this and DB consolidation.
In the DC world - we pressed for better regulation of master trusts for a long time – and that’s now - very nearly - in place. Our Head of Master trusts, Kim Brown, is delivering a speech tomorrow on our progress. Beyond master trusts, we have the very long tail of smaller DC schemes, which we have real concerns about.
I’m not saying that all small schemes are badly run, but I am saying that if they don’t meet our expectations we will encourage them to consolidate into a well-run, authorised master trust.
In automatic enrolment - undoubtedly a success so far. We’ve got 8% contributions and high compliance. But we need to think about how to improve it further over the long term. To adapt our processes, use data smartly, and efficiently so that companies continue to meet their duties.
We will intervene before problems arise. We will anticipate, rather than react. We have created a new Strategy and Risk Directorate to help us with this and we’re building a much more sophisticated long-term view of risk.
Remember that 22 year old I mentioned at the start of my speech? Let’s say it’s her or his birthday today and she or he is enrolled in a work place pension this month. The contributions being made now will be there for 40 plus years. What will her or his world look like in 40 years’ time? Could you have imagined what today’s world would be like in 1979?
What impact will new technology have?
What impact will global economic trends have?
What impact will climate change have?
Let me ask you - what will their world look like?
That’s what we need to be thinking about, to make sure our industry is fit for the future.
This is a sea-change in our approach. It reflects contemporary challenges.
It is also why I have started to work on TPR’s long term strategy. To be clear this long term strategy will build on TPR Future and does not seek to replace it. So later this year we aim to publish for consultation this long-term strategy.
iii) My team
I talked about my three priorities. The third is my team. An engaged, empowered and motivated team is central to protecting pension savers.
On arrival at TPR, three months ago it was one of my earliest priorities to meet the team. I therefore literally went desk by desk to speak to as many members of the team over the first couple of weeks. Of course having spent some years at TPR before there were many familiar faces, as well as many new ones. We have grown over the period from about 550 people to about 700.
It came as no surprise to me to hear about their commitment and expertise. What perhaps came as a bigger surprise was the degree to which the principles of TPR Future - clearer, quicker, tougher - resonated across the organisation.
A cultural change in TPR is really happening and it is far from just a slogan. It’s embedded into how we are working. For example, we have been clearer in the annual funding statement about our expectations of the balance for employers of paying dividends and paying into pension schemes; we have been quicker in our response to trustees where there is a risk of potential inappropriate pension transfers; and we have been tougher when last year we prosecuted a national recruitment agency for illegally opting workers out of their pension scheme. The company, its directors and senior staff were fined over a quarter of million pounds. The directors were also given suspended prison sentences - the first time such sentences had been given for a case brought by us.
Cultural change is difficult and takes time to fully embed. I am determined to embed it, but conscious that it is hard and puts pressure on our staff. But I want our people to be the best that they can be and I am committed to helping them to develop their skills and capabilities even further.
New regulatory model
Now let me tell you briefly about The Pensions Regulator of today - and our new regulatory model.
I will do this in three parts:
i) Change of structure
We have restructured internally to make us more proactive, more targeted and more flexible. Our teams moved into their new roles in April. Our front-line regulation team now fall broadly into 2 categories: Supervision and enforcement:
ii) What does supervision mean
a. Supervision relationships
We have introduced one-to-one supervision and are developing strong two-way relationships with some of the most strategically important DC, DB and public service pension schemes.
In addition to one-to-one contact, we are also contacting over a thousand schemes to address risks and influence behaviours in certain areas.
Early feedback tells us that schemes appreciate this closer contact and that we’re building stronger two-way relationships.
b. Supervision events
We’re proactively making contact with a wider number of schemes through targeted regulatory initiatives on the things we care about the most.
For example, we’ve been in contact with approximately 50 DB schemes to assess whether they’ve addressed our messages in the 2018 Annual Funding Statement. Specifically, whether schemes are being treated fairly when it comes to dividend payments.
We have also created a new rapid response team which will react to specific events that occur, including mergers, acquisitions, transactions and corporate distress.
The recent restructuring of Arcadia is an example where we held firm until an acceptable level of support was forthcoming from the shareholder and the company.
iii) Thirdly, use of powers / enforcement
We’re not shy to prosecute when people abuse their position and put savers at risk. We have used more of our powers, more often and been creative in using the law to protect savers. We’re testing our powers in the courts. We’ve prosecuted people for a range of offences such as fraud, making employer related investments, computer misuse, and wilful noncompliance with AE.
a) Last month we removed trustees from the DC pension scheme at Dunnes Stores as they lacked the knowledge and understanding to run the company’s scheme.
b) In March this year we prosecuted a trustee of a scheme who transferred nearly £300,000 of savers’ money into his own businesses. Working with the Insolvency Service, we prosecuted him for fraud, and other offences, which he admitted in court. In March 2019 he was jailed for 39 months - the first time a TPR prosecution led to an immediate custodial sentence. We are now seeking a confiscation order from the courts to force him to repay the money.
Trustees should be in no doubt that if they abuse their position they should be prepared to go to prison.
It’s right that we hold to account those who put savers pensions at risk.
It is also true that the prospect of using powers often delivers results. Last year we issued a warning notice to Southern Water who we believed were not contributing enough into the pension scheme compared to the level of dividends being paid out. The warning notice prompted Southern Water to pay more money into the scheme over a shorter recovery period.
TPR Future is here today.
But change is a constant. We will not stand still as an organisation, and in any case, pensions and the pensions landscape will continue to change.
We aim to publish our new strategy for consultation at the end of the year.
Meanwhile, expect us to be clear, quick and tough.
My focus will be on delivery and I will focus on the interests of the saver.
Let us work together to create the best environment for savers: an environment which is fair, safe, where people feel protected from those who seek to undermine good outcomes - an environment which is fit for the next generation of savers.