Good morning. I’m delighted to have been invited to speak to you again this year, As we approach the end of 2018 it seems timely to review. To look back, in order to go forward. 2018 has been a busy year for TPR.
We‘ve been implementing the authorisation of master trusts and are ready to receive applications as planned.
Automatic enrolment has continued its increasingly massive reach. We are heading towards ten million employees saving for retirement through this ground-breaking approach.
We saw the publication of the DB White Paper and we continue working with Government to develop detail and prepare for legislation.
We published our joint strategy for pensions with the FCA to show how we will work together even more closely for the benefit of savers.
We increased the use of our regulatory powers, successfully enforcing against those who break the rules or fail to comply with law, using a wide range of powers and grounds for prosecution. We secured our first custodial sentence.
We’ve had some big cases this year - for example, you may have read about our action to address what we felt was unfair treatment of the Southern Water pension scheme, and the successful outcome that brought about.
We had to deal with the fallout from the collapse of some large sponsoring employers and failures in corporate governance. And of course we sat before the Select Committee to pick through the detail of Carillion as part of identifying lessons to be learned.
And above all, we’ve been investing significant effort in overhauling our approach to how we carry out regulation, in shorthand, our clearer, quicker, tougher approach.
Personally it’s been a year of challenge and change. It’s always a challenge to be in the public eye and at times it can be uncomfortable. But I believe that regulators should be held to account for how we work and use the considerable powers that Parliament has granted us. And it’s essential that we learn from past events.
But at the same time, it’s been an exciting period to be at TPR; in particular, to witness the genesis, development and results of our ‘TPR Future’ project and our new approach to regulation and the changes this will bring some of which are already visible to you.
I now face a further significant change when I stand down as TPR’s CEO at the end of next February. It was a tough decision to make, especially given my respect for my colleagues, my fascination with regulation, the day-to-day variety and challenge I’ve got from the role and my commitment to doing something really worthwhile for the benefit of the public.
But today I can take advantage of the fact that I’ll be leaving and share some thoughts. I offer some of these (and I’ll make clear which) in a more personal capacity rather than as a TPR view, though they are undoubtedly tempered and informed by my time as CEO. My apologies if the selection appears rather random but they are all things that I think it’s important to say.
So this isn’t quite ‘gloves off’, but here’s some things for you to think about.
I’ll start with a suggestion that comes from my personal experience of working in both TPR and the FCA and that is that in my view it is time for TPR to become a rule-maker (as the FCA is in its areas of responsibility). At the moment TPR can only make codes or issue guidance. I have the utmost respect for the DWP, our sponsoring Government Department to whom we look when the legislation, whether primary or secondary, through which the rules are made needs changing. They are approachable, willing to listen and wherever possible they propose enabling legislation, rather than hardwiring too much detail into the law. But it can take years to develop, enact and then implement a Pension Bill, and there is always pressure on Parliamentary time and political horse-trading as it goes through the process.
So the framework of rules and requirements is slow to respond to changing risks and harm in what is an increasingly fast moving world. It also means that small, detailed things that need updating never get done, because there is never a slot in the Parliamentary timetable. Why should this be the case for workplace, trust-based pensions but not for contract-based pensions or wider financial services?
TPR has the knowledge, the experience, we have the expertise. We could make rules as the independent regulator and members and the industry could benefit from a huge escalation in pace and responsiveness. It would also reinforce further our independence as a regulator.
Consider the effect on compliance if the codes and guidance we now provide were pitched as rules. How more effective might our ‘nudge’ to do the right thing be?
I recognise that we’d need safeguards. I think rule making would need to be reserved to the TPR Board. And I think proposed rules ought to be subject to public consultation and published cost benefit analysis.
Regulatory grip over administrators
A second suggestion is another personal one and comes out of our TPR Future work, where we’ve been carrying out a more systematic analysis of the sources of risk in the pensions and world and exploring a much wider range of tools and techniques to promote high standards of governance and administration. As a result, we’ve highlighted the challenges and risks posed by pensions administration, which is a key element of the infrastructure behind so many schemes. Poor administration can directly impact on member outcomes - it can result in poor communications to members, or worse, incorrect benefits being paid. Both of these things seriously damage confidence in pensions as a whole.
At present TPR has no direct regulatory grip over the third party administrators who provide essential services to our industry. They can be a source of significant risk - we have been concerned about the impact that a ‘sudden stop’ of one of these administrators could have on their client schemes’ ability to pay benefits, for example - but they can also be a channel through which standards of administration in a large number of schemes can be significantly improved.
So I have to ask - is it sustainable for TPR to have no direct regulatory remit or power over third party administrators? Is it sufficient that we try, as we are indeed doing, to influence or cajole, but cannot direct or compel? Do we want to wait for something to go seriously wrong before addressing this regulatory lacuna?
Is authorisation the way forward?
My next point is an observation on a direction of travel one that has significant implications for occupational trust-based schemes.
Progress in driving up standards of governance and administration in workplace schemes has been painfully slow. Few trustees are wilfully non-compliant but significant numbers still apparently believe that basic requirements in the law do not apply to them and/or find it difficult to comply, perhaps because they are not able to access good advice or don’t know how to go about improving their scheme data.
We are seeing the introduction of commercial consolidator vehicles in both DC and DB landscape, which quite rightly will be subject to a robust authorisation and supervision regime.
So, the ‘authorisation’ genie is out of the bottle and I suspect that it points to the way forward, perhaps particularly for larger schemes, whether single or multi-employer. The fitness and propriety (which relates both to honesty and competence) of those who govern and run schemes, adequate systems, controls appropriate to the size and nature of the scheme, perhaps even a requirement for certain schemes to have an independent, professional trustee, might all be part of this.
One thing I would observe after nearly 25 years as a conduct regulator of one sort or another is that clearing up administrative messes after the event is complex and expensive and always leads to questions as to why Government or regulators didn’t prevent the situation occurring. A gateway, controlling who can participate in a market is always an attractive proposition, but we need to recognise it comes at a price authorisation is never a cheap form of regulation. And it only works if it is then backed up by effective supervision and enforcement you can’t just have a ‘one off’ assessment at a point in time.
But wider authorisation is unlikely to become a reality in the short term. At TPR, we’ve made clear that we want to encourage consolidation in the meanwhile. To drive better value for members, but also to reduce the number of poorly run schemes.
Our research tells us that one barrier to consolidation is the emotional attachment that trustees have. Particularly in relation to smaller schemes. They genuinely feel they’re providing something bespoke for their members. I don’t belittle this connection, but at TPR we think these trustees need to be encouraged to think through whether continuing to operate at this small scale really represents good value for members? And if this small scale is accompanied by a poor compliance record, albeit perhaps unintentional, then we are doubly concerned. You’ll therefore see TPR working to remove any barriers to consolidation and to challenge trustees (and their sponsors) to ensure their scheme meets the standards set out in the law and in our codes and guidance as a matter of urgency, or else consider the alternatives of winding up or consolidating.
Is the Trustee model broken?
Some of the above might lead you to ask whether TPR or I personally feel that the trustee model is broken? The answer is ‘no, we don’t’ but like any other mechanism it needs attention and maintenance. Is there still a role for trustees in the contemporary pensions landscape? Yes, absolutely. Next year TPR plans to run a consultation on trusteeship. An opportunity for people to tell us what they think and what would help most in driving up standards in governance, administration and compliance. What are the barriers that prevent this happening? How should TPR develop its trustee toolkit? Should there be mandatory training and qualification requirements for all or some trustees?
We are aware of changes to the market like the rise in sole trustee appointments. Whilst appropriate in some circumstances TPR is concerned with risks in this model - where sole trustees may fail to sufficiently challenge the employer that has appointed them, so you can expect greater scrutiny on scheme valuations we receive form sole trustees. If the trustee model is to survive then it requires attention from the regulator, the sponsoring employers, trustees’ representative bodies, employers and may be from the government.
Failure to innovate and invest in technology
Now on to a challenge from me personally to the wider pensions industry. I’m not generally a finger pointer. Though I am quite happy to waggle a digit in relation to digital.
We can shop online, bank online, keep in touch with friends and family. But many of us can’t access information about our pensions that way. In comparison to retail and other parts of the financial services forest, we are a pen and paper world. But where is the investment in technology in the wider pensions world? How is it that with so much opportunity in our sector, so little has been done to innovate, whether in communicating with members or providing back office support for schemes. It seems to me that the pensions industry is several years behind banking and insurance in this regard.
At TPR we are strong supporters of the pensions dashboard, particularly in terms of helping savers keep track of multiple pots. I personally believe it could also develop further functionality to support better decision making by members, although I’m open minded as to what this might be. I welcome the Government’s feasibility study published this week and urge you to respond to the consultation. TPR stands ready to play its part in taking the work forward in conjunction with the industry, the SFGB and the FCA.
But beyond this, and outside the investment made by some large employers in effective communication with their schemes’ members where is the innovation and investment? Until I attended the tech sprint which TPR and the FCA jointly hosted in Edinburgh last week, I’d seen more of a tech-toddle. We saw some really exciting ideas emerging in Edinburgh particularly through making use of open data from a non-pensions area and applying that to challenging scenarios in the pensions world - for example, in identifying members who might be vulnerable in some way. You’ll be hearing and seeing more from TPR in this space we want to facilitate constructive innovation which leads to better outcomes for members.
Is the pensions industry too inward looking?
I’m very proud of TPR and I’ve enjoyed my time as CEO. It’s been a joy to develop relationships with the industry. I’ve met amazing people and been involved in important debates. I think the relationship between regulator and regulated works well; there is a healthy and mutual courtesy that runs across the entire industry.
Personally, I wonder if we are too inward looking as a group? Might some of the issues that I’ve noted be better addressed if we were more minded to look beyond the established relationships we have? Could we benefit from the wisdom and experience of other sectors? I think so. Innovation often emerges from taking an idea originated in one area and then applying it in novel ways elsewhere. Would it be wise to broaden our horizons and take notice of policy areas and businesses that are not directly related to pensions? I think so.
I’d like to see a much broader and looser series of conversations. I think it’s time, having established a bedrock of protocol, policy and standards to seek new ideas. Though I know that telling people you work in pensions is likely to bring dinner party conversations to a sudden stop. It’s remarkable how immediate and resonant discussions about pensions can become.
Aspirations, home-life, family, financial security. Comfort, stability, inheritance. Health, happiness, security. I’ve had as many conversations about these as I have about regulation. We can, and should look beyond the confines of our industry. We must acknowledge that a strong pension is only one aspect to a secure retirement. It will be interesting, for example, to understand the government’s proposed long-term sustainable solutions for the social care system in its forthcoming green paper on social care and to consider how pensions plays into this.
I’d like to turn briefly to diversity. TPR’s particular interest is in the composition of trustee boards. Diverse boards bring better decision-making and governance. They have a closer connection and better represent the members they are there to serve. So there is a particular challenge here and I welcome initiatives such as the ‘Next Generation’ initiative which is finding ways to involve younger people in all aspects of the pensions industry.
We should then be encouraging all peoples to work in our industry and be making efforts to attract and include them. Barriers erected due to race, sexuality, belief, physical ability are barriers to success. Unconscious bias can lead to a stiflingly lacklustre environment and drain policy development of relevance.
I’m aware of an irony here. I’m in a very privileged position. I daresay some would describe me as being part of the ‘Establishment’ I benefited from a good part-state, part-private education, albeit I was the first person in my family to go to university.
Things that I can take for granted, like a stable background, reasonable health, a good (too good?) diet - are things than not everyone can be sure of or have access to.
We care for the futures of many millions of people and it’s our duty, whether regulators, trustees, providers or others to be able to understand them and their world and to represent them where necessary. It’s all very well to have empathy, but it’s another entirely to have experience. We therefore need to get better at creating opportunities. About seeing and removing barriers to a truly diverse and inclusive industry. We need to realise the importance of role models and how people of influence don’t just exist in the senior executive levels but across and throughout our organisations. I would note that trustee boards have inbuilt mechanisms that ought to help here, in the shape of Member and Employer Nominated Trustees.
The more able we are to reflect the world we serve the better the service we all offer will be.
I recognise the enormous support I’ve received from colleagues, both immediate and from the wider industry. I’m grateful for the conversations, advice, challenge and friendship. I offer my successor one piece of advice, which relates to a couple of points I’ve already made. Those of effective communication and diversity of perspective.
Get out and talk to people and listen to them. Find out what makes people tick. What are their aspirations? What are their anxieties? Maintain a broad perspective through the widest possible network and careful stakeholder management.
Despite the large number of people I’m responsible for and responsible to, being a CEO can be lonely. I observe that it can be rather isolating and easy to accept the burden of sole responsibility - for both perceived successes and perceived failures.
And others don’t help here I’ve lost count of the number of times I’ve seen ‘The Pensions Regulator’, an organisation created in law, based in Brighton and consisting of over 600 people personified as a ‘she’. I can’t think who they’re talking about! But I might suggest it happens because for some people, seeing a woman lead an organisation like TPR is still worthy of comment less and less so, but there is still a way to go.
But of course it’s not all about the CEO , in any organisation and shouldn’t be so. At TPR we have an excellent senior team to lead the organisation forward through the transition to a new CEO. And a very strong Board and Chairman working alongside them. So normal service will be maintained. I’ve discovered the best solutions and answers tend to form collegiately, whether internally at TPR or across the world we regulate. And to do this, we need to go out to meet as wide a range of people as possible and share ideas.
And for me, the most rewarding aspect of being a CEO is the opportunity to get out and about and to do so. That’s why it gives me so much pleasure to be here today and to be able to share my thoughts with you.