Learnings from Carillion
Raising the bar for a tougher regulator
01 Jun 2018 - Estimated reading time: 3 minutes
For some time now the Pensions Regulator has spoken of being ‘clearer, quicker, tougher’. But the Work and Pensions Select Committees’ inquiry into the Carillion collapse suggests that tPR’s threats had little impact in the lead up to the failure and that its bark is worse than its bite.
Sadly Lesley Titcomb has become the DWP Select Committee’s sacrificial lamb, when much of what’s needed has begun on her watch. The interview questions for Lesley’s replacement look set to be slanted towards experience of organisational change and degrees of comfort with commercial confrontation, as Frank Field’s drive to see “substantial change of culture” moves forward.
Raising the bar
Corporate failures have always been the catalyst for pension legislation. Maxwell led to the Pensions Act 1995 and Allied Steel & Wire led to the Pensions Act 2004. Carillion’s legacy will be to toughen tPR.
We believe the Regulator’s teeth are already sharp enough, but are too hard for tPR to access. The convoluted process of going through tPR’s Determinations Panel has slowed action to a crawl in some cases, leaving tPR barking and unable to bite.
The white paper proposes a new funding code of practice, which is targeting tPR’s ‘clearer’ and ‘tougher’ ambitions. If tPR says what it wants and trustee/sponsors don’t do it, then it will be easier for tPR to sanction use of its powers.
The Parliamentary push for cultural change at tPR is squarely aimed at ‘tougher’ and ‘quicker’. With easier access to its power, Parliament wants to see tPR’s powers executed more frequently and in some cases much earlier.
tPR’s leadership is already demonstrating cultural change, for example its tougher 2018 Annual Funding Statement, emphasising the fair treatment of pension schemes relative to shareholders. TPR has also flexed its muscles with fines for non-provision of information. Further changes are needed to speed up tPR’s operational processes, particularity if tPR is expected to intervene in the middle of fast moving corporate failures.
Beware legislative pendulum swings
The Government must be mindful of the irreconcilable objectives it has given tPR: to balance the protection of pension scheme members against the promotion of sustainable economic growth.
The high profile cases of Carillion, BHS and Tata Steel have swung the legislative pendulum heavily towards protecting members. But we should beware of sluggish economic performance post Brexit swinging this pendulum back to protecting business growth. The legislative ball is in the DWP’s member protection court, but it will only be allowed to stay there if Treasury’s tax revenue numbers keep stacking up.
Both industry and regulators need consistency across economic cycles, especially when dealing with multi-decade pension issues.
A few bad apples
It’s essential to remember that the vast majority of employers work hard to do the right thing by their members. The green paper a little over a year ago found that the current regulatory regime was working well in general. The sad reality is that thousands of examples of good practice are undermined by a few spectacular failures.
A targeted response is warranted, to focus on the bad apples, not to increase the burdens on everyone else. The consolation is that we collectively learn from these failures to find smarter ways of raising the bar and improve the security of all members’ benefits.