Regulator's annual statement omits Brexit implications

In the report published last week, the regulator’s chair and chief executive emphasised the organisation’s success in areas such as communications, protecting the Pension Protection Fund, balancing employer sustainability and scheme contributions, and improving defined benefit and defined contribution governance using approaches such as the revised Trustee Toolkit.

British Home Stores has probably raised the regulator’s profile more than any of the campaigns they’ve run

Adrian Kennett, Dalriada Trustees

A spokesperson noted the regulator’s improved agility and enforcement.

“We are determined to make bolder decisions and to deliver clear and consistent messages that engender confidence in retirement saving and the system of pension regulation,” the spokesperson said.

“We are confident that this year we have laid the groundwork for further success in 2016-2017.”

Statement on Brexit expected

However, some experts said the report failed to take into account cataclysmic changes following the referendum, making it less relevant than it could have been, and that it missed some basic issues.

Adrian Kennett, director at professional trustee company Dalriada Trustees, said the regulator’s aim to simultaneously protect the PPF and maintain employer sustainability seems contradictory. “They are walking the tightrope,” he said.

It is not enough to provide better tools such as the revised Trustee Toolkit, Kennett said, if its completion is not enforced. The new toolkit has more modules, but the tool can only be “useful if everyone does it”, and there is no enforcement for lay trustees to complete it.

However, he welcomed the regulator’s greater use of its powers, saying this has made people more cognisant of them.

“The regulator has started showing its teeth, and it needed to,” he said, referring to the fact that the regulator recently issued its first fine, worth £500, to a scheme that reported it had failed to submit a chair's statement.

From a trustee’s point of view, Kennett said, the regulator’s new media campaigns have been successful, particularly it's 'scorpion' campaign.

For the public, however, at whom many of the efforts were aimed, “British Home Stores has probably raised the regulator’s profile more than any of the campaigns they’ve run”, he said, hinting at criticism levelled against the regulator for not intervening before the BHS scheme entered the PPF assessment period.

Above all, Kennett said, the pensions industry needs the regulator to make a statement on the post-Brexit world.

“I’m looking for the regulator to say something, and say it soon,” he urged, especially about immediate practicalities such as valuations, now that many companies are reaching a “financially critical stage” following Brexit upheaval.

PPF risk remains high

John Walbaum, head of investment consultancy at Hymans Robertson, agreed with the report’s analysis that auto-enrolment has revolutionised the pensions landscape by creating millions of new first-time savers. “Many have been surprised by the success of auto-enrolment; cynics were expecting the opt-out rates to be higher,” he noted.

However, auto-enrolment has begun at very low base contributions, he remarked, and cannot guarantee a comfortable retirement for everyone. Moreover, he pointed out that developments such as the Lifetime Isa have had an equally dramatic impact.

Walbaum said that while the regulator has reduced the risk of schemes entering the PPF by spending time getting employers and trustees to focus on risk management, “deficits have risen dramatically” following the referendum, and the risk "remains high”.

He also welcomed the regulator’s greater pressure on pension schemes to take their employers’ long-term sustainability into account, rather than maintaining a short-term focus on contribution payments alone. “Practically, kicking the can down the road is not the best solution,” he said.

'Poisonous triangle'

John Belgrove, senior partner at consultancy Aon Hewitt, said that while the regulator’s progress with auto-enrolment has been laudable, still “there is a poisonous triangle which needs to be addressed”.

Savers either need to put more into their pot, retire later or take a lower pension, and auto-enrolment alone cannot solve the problem, he said.

The report touched on its increased scrutiny of mastertrusts, which Belgrove agreed is a step in the right direction. He said there needs to be “more transparency” on providers’ standards, as there is currently “a huge range of quality” as a result of recent proliferation.

He commented that it might be difficult to reconcile scheme funding with ensuring employer sustainability, especially if gilt yields stay low, but stressed that the regulator’s Integrated Risk Management Framework is helping schemes “strike a balance” between employers’ business sustainability and contribution levels.