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PLSA annual conference speech by Charles Counsell

Friday 16 October 2020

Introduction

Good morning and thank you to Richard Butcher (PLSA Chairman) for inviting me this morning.

The challenges we’ve faced over the last six months - as individuals, as an industry and as a nation - have been significant.

All of us are going through a deeply unsettling experience. We have had our working and our personal lives turned upside down. Some of us will have suffered painful losses.

We don’t know yet what the full impact of COVID will be, but we do know it will be profound and long lasting.

We also must accept that we’re facing a difficult year - at least a year - ahead of us.

In this economic storm caused by the pandemic, and all the uncertainty that comes with it, the security we provide for workplace pension savers is more important than ever. The pandemic has put people’s finances under severe strain as well as impacting their wellbeing.

Savers will crave and need as much financial security as they can get during times like this, and that’s why it’s right that savers are absolutely at the forefront of our minds. We must not allow their future financial wellbeing to be put at risk.

The job that all of us do - all of you, and me and my team - in providing a robust and secure pensions landscape is vital.

My talk today is in two halves.

First, I’d like to give a quick overview of where The Pensions Regulator's (TPR) current thinking is, what our expectations are around COVID, what we’re focussing on in the immediate future.

Secondly, I’d like to share with you our aspirations over the longer-term.

Today is a big day for TPR. We’re launching our Corporate Strategy.

Our Corporate Strategy is an ambitious project which spans the next 15 years - it sets out the different types of saver, the risks and challenges facing them, and how we need to respond to those challenges.

We welcome your input on the strategy - so the version that we’re launching today is a discussion paper. We want to provoke your thoughts, and to draw on your expertise and insights to help us finalise how we implement the strategy.

We’re planning a series of roundtables shortly to gather your opinions and we’ll publish the final version in the New Year.

But let me start with the more immediate horizon and impact of COVID.

COVID-19

1. State of the nation

a) COVID-19

If there is one thing I want you to take away from my talk today, it’s this:

TPR is, and will continue to be, a quick, clear and tough regulator.

It’s what the industry wants us to be. It’s what the saver needs us to be. COVID will not change that.

We introduced some easements at the start of the pandemic, to give employers under financial pressure some short term breathing space. This included the option to suspend or reduce deficit repair contributions for defined benefit (DB) schemes where appropriate, by working with their scheme trustees. Missed payments must be caught up later and we want to see plans in place to offset any risk to the scheme.

In automatic enrolment (AE), we extended the period in which schemes must report payment failures from 90 days to 150 days.

We reached out to schemes and administrators covering millions of memberships and reprioritised our own work to meet the most pressing risks head-on.

We understood that some administrative breaches of the law would happen, and we agreed to maintain a proportionate and fair approach to any action we took.

We know that this approach was welcomed by the industry.

Six months in and I’m glad to say that, despite what you may have heard in the press, we have not seen a significant or unusual spike in missed pension contributions to date. The vast majority of employers are meeting their automatic enrolment duties, including completing their declaration of compliance and re-enrolment responsibilities.

Nor have we seen an increase in employers avoiding their DB responsibilities. Almost 200 schemes have shared information with us seeking flexibility to contributions due to the unprecedented challenges presented by the global pandemic. That’s around 3-4% of schemes seeking a delay to DRCs rather than the 10-15% originally estimated.

We have reviewed each of these and the vast majority were considered appropriate considering the situation facing the employer at that time.

We do look at each of these on a case-by-case basis. I am not suggesting that any of these cases have been improper, but we will ask challenging questions and request more information and stand ready to use our funding or avoidance powers where necessary.

I appreciate it’s still quite early days and the economic fallout from COVID is likely to put further financial pressure on schemes, employers and individuals.

We are vigilant and monitoring the situation closely.

Introducing the flexibilities was the right thing to do. We introduced them at the right time to help schemes and employers through an intensely difficult period.

We acted quickly and decisively, and we will continue to do what is necessary to support the industry.

But I want to make this clear: please do not mistake this breathing space for a softening of our stance. The easements we introduced were a necessary response to an extraordinary set of circumstances, and not a change in our approach.

We will not let the saver be forgotten. We intend to be a powerful champion for savers’ interests now and in the future.

We are committed to helping employers and schemes cope with and recover from current challenges, but we will not let COVID be used as a blanket excuse by schemes, employers or individuals to dodge their responsibilities. We will continue to approach each situation on a case-by-case basis.

I’m sure many of you will have seen and welcomed the outcome of our case against Patrick McLarry, who was CEO and Chairman of the charity Yateley Industries. McLarry stole more than £250,000 from the pension scheme and spent the money on properties for himself in the UK and South of France.

We had a long running case against him and in February he received a five-year jail sentence for his actions. We pursued him further using the Proceeds of Crime Act to make sure he paid all the money back. This was the first time we had used this legislation. That action was successful too and last month a judge ordered that he refund the money to the scheme within three months, or face a further three months behind bars, so the members will receive the payments they are due.

This is a visible example but do remember that most of our actions are (necessarily) hidden from view. So, we continue to be tough where necessary, even during these times.

b) Corporate Plan

In June we published our revised Corporate Plan which sets out our priorities, Budget and Key Performance Indicators (KPI) for current year. Since we had already entered lockdown at that point, the plan reflects the challenges that COVID-19 is presenting.

We continue to deliver against the plan to make sure that schemes are well run or considering consolidation where appropriate, and that employers are fulfilling their pension duties. We will continue to embrace innovation in the market, such as DB superfunds and pension dashboards. And we also continue to get the message out to savers about the risk of pension scams and to tackle scams.

It’s important to realise that COVID-19 is not an 'event' it is an environment, and we must learn to live with it for now.

That means re-prioritising and shifting our focus slightly. That’s what we did in our Corporate Plan, and we expect schemes and employers to re-prioritise too.

I hope my message has been clear:

We are supporting our community to navigate through the current challenges. But our stance as a clear, quick and tough regulator remains. Our ambitious agenda to extend our regulatory grip - set out before COVID-19 is unwavering. 

Corporate strategy

Turning our attention further into the future, I’d like to introduce our new Corporate Strategy.

In the 15 years since TPR was formed, the savings landscape has been transformed. At our inception, workplace pensions saving was for the minority and most savings were accumulated in defined benefit schemes. We now protect more than £2 trillion in pension savings, representing around 30 million scheme memberships.

Our Corporate Strategy sets a clear vision for our aspirations over the long-term.

It explains what we want to achieve: for our savers and for our regulated community.

It will help us map and influence the development of the savings landscape over the next 15 years. And it will allow us to forecast and respond to emerging risks and challenges more effectively.

We originally planned to publish it in April, but when it became clear the impact that COVID would have, we paused this and took some time to review it and make a few amendments to reflect the new landscape.

That extra analysis has shown us that the underlying principles remain sound. If anything, COVID has underlined the need to take a long-term view.

Our Corporate Strategy reflects our unswerving dedication to putting the saver at the heart of what we do in three ways:

i. driving participation in workplace pensions

ii. enhancing outcomes for retirement savers

iii. protecting the savings they have built up over a lifetime

You’ll spot one of the core themes of the strategy immediately. It is the same as the core theme for this speech - that we need to put savers first.

One of the driving factors for the strategy is the need for us to shift our focus, over time, from DB to defined contribution (DC).

The days when pension schemes promised a set income are disappearing - though please do not take this as a signal that we want open schemes to close, but the reality is that most are now closed. This means that employers no longer bear the risks. Whether savers understand this fact or not, it is they who now bear the risk.

For younger (often lower paid) savers especially, who are being automatically enrolled into DC pensions, it will be investment performance, value for money and at-retirement decision-making that will play a much greater role in retirement outcomes.

Through pensions freedoms they have far more responsibility for their own retirement outcomes than ever before. Savers rely on us (and the FCA) to make sure their scheme is well run and delivers the best outcomes.

The introduction of pension freedoms has also underlined the need for education, advice and guidance so that people don’t make poor decisions and can protect themselves against scams and fraud.

We will need to be vigilant, working with our partners to understand the impact of these changes on savers’ behaviour for years to come.

So we know what has changed - the ongoing transition from DB to DC, the focus on the saver, the accelerating trend towards consolidation.

But some things are not changing: our statutory objectives remain the same. We continue to be a risk-based regulator. And we will continue to be clear, quick and tough in our approach.

The strategy reflects other long-term trends, including and importantly the increasing responsibilities on trustees around environmental, social and governance (ESG) and climate change.

It’s worth noting here the latest requirement which states that from 1 October, trustees will have to include an implementation statement in their annual reports and accounts to show how they have turned their consideration of climate change risks into action.

PLSA have published some excellent guidance on this, which TPR contributed to, and we would advise all of you to read.

We know that COVID has had an impact and will change things. We know that there will be more political, social, demographic, economic and technological shifts which will drive yet more changes. COVID-19 is likely to accelerate the pace of changes already underway, as well as bringing its own risks.

We know it’s not possible to predict every twist and turn, but our strategy does give us a vantage point so that we can be better prepared and on the front foot.

We have segmented different groups of pension savers - Baby Boomers, Generation X and Millennials - and have set out the challenges and our aspirations for each of them. We recognise that each of these groups face different circumstances in terms of their balance of DB, DC or other long-term savings including property wealth. Within each group savers also faces different challenges depending on their relative income levels and earning potential.

We have also sought in our strategy document to set out how we think the pensions landscape will evolve over the next 15 years, picking up on trends that existed before the pandemic many of which have been accelerated by it.

We are putting the pension saver at the heart of all the we do:

  • Savers entering, or in retirement, over the next fifteen years can expect us to protect their savings.
  • Savers who are further away from retirement can expect us to drive participation and enhance the quality of their savings outcomes.

Our strategy gives us a framework for responding to the future risks and challenges by tailoring our approaches to each of the different segments.

To achieve this, we have set out five strategic priorities:

  • Security
  • Value for money
  • Scrutiny of decision-making
  • Encouraging innovation
  • Bold and effective regulation
  1. The first of these is that savers’ money is secure. Our primary goal is to protect the money that savers invest in pensions. In the early stages of delivering this strategy, we will maintain our focus on the promises that are made to savers in defined benefit schemes and on protecting their pensions from scammers. We will work to ensure that these schemes are funded to meet their commitments and that savers can continue to rely on the security provided by the Pension Protection Fund where necessary. We will encourage the simplification of defined benefit schemes, work with the market on alternatives to ‘traditional’ schemes and drive consolidation where this is in savers’ interests. As assets in defined contribution schemes grow we will, over the fifteen-year horizon of this strategy, shift our primary focus to the security and value that these schemes provide savers.
  2. Value for money. Pension savers are entitled to expect good value for their money. This means that savers’ money must be well-invested, costs and charges must be reasonable, and good quality, efficient services and administration are driven by robust data. We expect and will actively pursue value for money throughout the pensions system and will intervene where our expectations are not met. Where consolidation occurs, we expect it to deliver improvements in the value of savers’ outcomes.
  3. Our third priority will be a focus on decisions affecting saver outcomes. We will monitor those who make decisions that impact savers’ outcomes, closely scrutinising any decisions that pose a heightened risk to the quality of these outcomes. We will increase our focus on managing savers’ exposure to both economic and environmental, social, and governance risks. We expect diversity among those who take decisions on behalf of savers. We also expect decisions that affect savers to be fair and transparent and will intervene where we believe poor decisions may lead to bad outcomes for savers.
  4. Fourthly, Embracing Innovation. We will encourage innovation and good practice, collaborating with the market to enhance security, efficiency, transparency, simplicity, and choice. We do not underestimate the scale of change in the pensions landscape and as we evolve we will balance our resources to intervene where we will have the greatest impact on saver outcomes.
  5. Bold and effective regulation. The Pensions Regulator has undergone significant change in recent years, but we do not underestimate the need for adaptability as the pensions market and our focus shifts. We will transform the way we regulate to put the saver at the heart of our work, driving participation in pensions saving and enhancing and protecting savers’ outcomes. Our approach will be proportionate to the challenges we face and we will demonstrate our own effectiveness and value.

Throughout our evolution we will maintain a sharp focus on bold and innovative regulation, anticipating and preventing issues before they materialise. We will adapt to a changing world, flexing our approach to the opportunities and constraints of the time, and work with our partners and industry to deliver on our commitment to pension savers.

As I mentioned at the beginning, this iteration of the strategy that we’re launching today is a discussion paper. We’d like your thoughts and we’re holding a series of discussions with our stakeholders during the autumn.

These roundtables will focus on our analysis and strategic priorities and how we can work together to deliver against our goals, so please get involved in those.

Conclusion

Throughout the pandemic there has been intense focus on wellbeing - for some this has been their physical wellbeing, for some their mental wellbeing, while for some it is their immediate financial wellbeing. I believe though that we should add to this the fourth pillar which is their future financial wellbeing.

Many people are under pressure financially and have had to re-prioritise. But long-term savings are critical, and we are encouraging people to continue to contribute to their pensions where they can afford it.

In doing so, we must focus on the security of these savings. On the value they deliver. On the decisions people make that affect savers outcomes. On innovation in the marketplace. And on bold and effective regulation. What we do as a regulator - and you in the industry - is more important than ever in these difficult times.

We are committed to helping employers and trustees through these difficult times and we will not let the saver down or be forgotten.

Thank you.

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