Good governance, regulation and policy
Ladies and Gentlemen, colleagues; I’m grateful both for the invitation to join you this evening and to be a guest at your AGM. It’s a pleasure to be given the opportunity to speak about the work of The Pensions Regulator and to recognise the mutual benefit of our relationship.
I’m going to be talking about good governance, regulation and policy this evening; topics you’ll be familiar with, but which are – especially in light of recent events – crucial to pension schemes and better outcomes for members.
Assertive oversight and diligence are key to good trustee governance. Scheme administrators often bridge the gap between trustee aspirations and genuine good governance, and occasionally also fill those gaps where trustees are not properly engaged with the process.
We want trustees to better appreciate the value of administration, we would like them to develop a better dialogue with administrators and we want them to appreciate the link between good governance and improved outcomes for members.
21st Century Trustee
As part of our 21st Century Trustee programme we are developing advice about better managing advisors and service providers; and we hope – as a result – trustees will develop a closer and more engaged relationship with their administrator.
As work to provoke this behaviour change makes an impact, the administration industry itself will need to respond; and we want to work with you to ensure this is timely and appropriate. You also need to know that it’s our intention to encourage trustees to take a more active role in managing and asking the right questions of third party administrators and advisors; and this no doubt will prompt its own consequences. I’d like to feel that we can support one another in dealing with that.
We already work with the administration industry to raise standards and address specific issues and PASA is central in helping us develop a practical, positive dialogue.
I think we share an anxiety that things are not moving fast enough and my hope is that by pooling our expertise we can help trustees better understand their roles. I’d like them to feel more confident in their appreciation of administrators and able to strengthen a relationship that should be valued but that sometimes seems to be regarded as peripheral.
We will pursue our aspiration to improve standards of trusteeship. We are very mindful that – for some trustees – roles initially volunteered for have changed and we are working hard to recognise that fact and offer appropriate support.
For many trustees the world of pensions has radically altered, so it’s no surprise that – given the pace of change – some seek solace in familiar places, rather than feeling able to face new challenges. As a consequence our experience is that standards of trusteeship are patchy; there are pockets of excellence and areas of poor practice.
We would much rather everyone got the basics right; rather than being able to point out instances of very good or very poor practice. Our intention is to provide the tools and information to up-skill those that require it and offer support to those already achieving those standards.
There is a lot going on in the world PASA and TPR share; the implementation of the freedoms are bedding in; GMP reconciliation and equalisation are bringing up new issues; not to mention GDPR and the pensions dashboard.
Clearer, quicker and tougher
We appreciate that the pace of change is a challenge; and that in a field as complex as pensions, keeping abreast of rules and regulations can be difficult. Our intention to be clearer, quicker and tougher is mindful of the challenges you and others face and our desire to guide, support and direct.
In the world we inhabit it’s vital to be up to date. It’s a sure way for trustees to ensure they are exercising their duties appropriately. It’s a way for pension managers to ensure they are familiar with current legislation and the best way for companies to avoid any breaches of duty. For media colleagues it helps define and pinpoint stories and for those working as consultants it means clients can be totally sure of the advice and support provided.
Merely keeping abreast of information can be demanding; it can feel a bit of a chore and one more thing to do among a sea of competing priorities. We strive to make the information we share as accessible and understandable as possible. Naturally the need to quote case law and legislation sometimes works against our aspirations, but we try as hard as we can to be clear and approachable. I hope these things are apparent to you, but they are so fundamental, that I think it impossible to overstate their importance.
Policy changes introduced over recent years have increased demands on us all and as our population ages and people lead longer lives, the issue of pension provision has become of interest not just to trustees and pensioners, but increasingly to journalists and politicians. The heat is on.
Especially given the headlines of the past few months, ‘Carillion’, ‘BHS’, ‘The British Steel Pension Scheme’. It can feel that the business world sometimes regards pension provision as a burden rather than a contractual obligation. These cases are rare, but they have a big impact and they highlight the difficult circumstances that some trustees and employers are operating in.
Mindful of these challenging circumstances we have been working hard to keep information flowing. However, we can be certain that change will be a constant, and this means that guidance and advice will alter.
Given the pace of change and the need to ensure schemes are robust and resilient we’d like trustees to appreciate the value of contingency planning: getting things in order should there be a problem, or at the very least having a plan to cover short-term difficulties. This is why we are focussing so hard on our 21st Century Trustee programme; finding innovative and effective ways to help trustees improve their skill-base.
This is an area where strong relationships between trustees and administrators will be essential. Though we don’t underestimate the work it will take to get trustees to the point where they really appreciate the need for world class administration, I hope we can work together to reach this goal.
This is a challenge both for TPR and the administration industry. We can make our communications as pertinent and clear as possible, but we can’t force colleagues to read them – and we really appreciate the work of PASA in promoting and sharing information. As pensions and their management hurtle up the news agenda more people are becoming interested in the resilience of schemes and the need to demonstrate due diligence and professionalism has never been clearer.
Driving up standards
PASA plays a huge role in driving up standards of pension scheme administration – the accreditation standards set the bar for what an administration service should be; whether on reporting or business continuity. Your codes of conduct and practice aim to ensure trustees, and crucially members, get the best service they can out of industry, even in difficult circumstances such as changes in administration providers.
The majority of pension schemes are well managed, transparent and solvent – don’t be disheartened by the shortcomings of others; be encouraged by the fact that they are the exception to the rule and that good administration makes those successful schemes what they are.
We know that some trustees struggle to appreciate the value of administration and we understand the impact this lack of attention can have. A poorly administrated scheme can suffer consequences as dire as a poorly invested scheme but we all know where most trustees interests lie. It’s much more fun to be examining the figures than it is reconciling data.
Scheme administration is a live issue for us, record-keeping is a corporate priority. This may sound prosaic, but it’s a basic failing of some schemes and so fundamental that we are increasing our support and engagement with trustees so that they might have a better appreciation of the issues. We want trustees to see the value of administration, not view it as a secondary matter of paperwork.
We think we are being proactive in this regard. We require record-keeping scores in scheme returns and have developed practical tools in order that this might be done as painlessly as possible.
Our record-keeping quick guides published over the last couple of years provide simple advice on record-keeping, how best to measure data and improve its quality, but we are still struggling to persuade some that this is a core activity rather than secondary one.
We are taking action and issuing fines in respect of administration failings; the ‘Now Pensions’ issue being a case in point. And our robust approach will include taking third party action where required. We hope this will act as a deterrent. The issue with Now Pensions was not one directly linked to their administrator, but we can and will take action against third party administrators where necessary.
‘Governance’ is one of those words – like ‘tax’ or ‘mortgage’ that creates a feeling of weariness upon its very utterance. It sounds stuffy and tedious and makes us think of rules and regulations, protocols and guidance – things that are about as far from ‘fun’ as is possible.
I’m attracted to the world of regulation – which I know might make me sound a little peculiar – but there we are within regulation I like to think of governance as a hammock; a net of guidance, protocol and policy that ensures not only peace of mind, but robust, fair and transparent accountability.
You and I know that ‘governance’ isn’t a word to be wary of or something to put up with; it’s a way of negotiating complex arena; a suite of directions and controls that make it harder to fail if we can find a way of saying that to trustees we’ll be on the right track.
Good governance is at the heart of a successful pension scheme; get that right and it makes the rest so much easier. Getting it right and continually reviewing progress not only keeps the Regulator at bay, it improves the likelihood of better returns for members.
We do of course have the right – and possess the powers – to intervene if standards are not met. Our preferred method – as always – is to support, advise and educate, but if after these interventions improvements are not made, we can – and increasingly we will – take enforcement action. This is what we mean by clearer, quicker and tougher.
I mention this now only to remind you of the scope and authority invested in The Pensions Regulator – though we’d much rather be seen as a critical friend than a wagging finger.
We await with interest the White Paper which will set out any new powers government are considering giving us. We prefer to be advising and supporting as opposed to pursuing and penalising, but we agree that in certain circumstances we could be better armed to deal with serious instances of poor oversight.
If however as a result of poor management, scale or resource a scheme finds itself unable to function then consolidation is an option. Depending on the type and size of scheme it can be a complex and challenging thing to do, but there are benefits to amalgamating a small, failing schemes into a larger body – and again we would be on hand to advise, support and direct where necessary. We welcome the government’s Pension Schemes Act which has given us tough new powers to regulate master trust schemes. The Act creates a safe, robust and sustainable master trust market, and will act as a strong driver for a market led consolidation of the huge oversupply of DC occupational schemes, some of which struggle to meet adequate standards of governance and administration and pose a risk to good member outcomes.
For schemes themselves, good governance, the right people and sound structures help. A good business plan, long-term objectives and proper oversight are essential for sustainability and growth; but administration underlies all of these and it’s here that we need to be smarter. We need to find more assertive ways of getting trustees to appreciate its value.
Working with you, we want to improve the security and stability of pension schemes and thereby improve the retired lives of millions of people.
I’d like to conclude by thanking PASA once again for the work that you do – and in particular for the specific advice, support and care that you provide my policy colleagues; I and they are incredibly grateful.
I’d be happy to take any questions.
Interim Executive Director of Regulatory Policy