Lesley Titcomb, the Pensions Regulator’s new chief executive has taken the helm at the busiest of times. She outlines her priorities and considers the challenges that lie ahead
Lesley Titcomb isn’t afraid of a challenge. The Pensions Regulator’s new chief executive has been in post for three months and has already seen the appointment of a new pensions minister, the start of auto-enrolment for smaller employers and growing alarm from some quarters about the threat that proposals from Europe could pose to UK pension schemes.
Clearly she has a daunting to do list ahead of her, but she seems calm and undaunted when I meet her. She says she has been busy engaging with “key stakeholders” across the industry since her appointment.
First and foremost, Titcomb is keen to emphasise that the Regulator is here to support trustees. “My message to trustees really is do the basics well and we are here to help.”
But many trustees feel caught between a rock and a hard place when it comes to protecting members from the threat posed by pension fraudsters and their cynical scams.
Fraud itself isn’t new, says Titcomb. “These people are shape-shifters. They will take every opportunity to step into a vacuum and to try and rip people off in whatever way they can think of this week. If we fight them off – and believe you me we’re trying – in this particular space then they will just try and find the next one.
“I’ve been in regulation for over 20 years and when I came into regulation it was all about investing in ostrich funds which was the issue! And now it’s freeing up their pension money to give it to somebody to go off and invest in something equally inappropriate.”
Behind the scenes, the Regulator is working hard with other regulators and crime-fighting partners, Titcomb says. They have two priorities: to educate the public and to use shared intelligence to “nip this stuff in the bud wherever we can”.
What advice would Titcomb give to the trustees who are fighting these shape-shifters on the ground?
She points out that the Regulator has published extensive guidance for trustees on the threats that fraudsters pose. “Our guidance is that they need to basically give information to scheme members to enable them to make informed decisions. I can absolutely see that that’s quite a tall order for many trustees. So a lot of this is about the quality of trusteeship and governance of schemes generally. Make sure your scheme is geared up to ask the right questions.
Titcomb concedes that there’s little the scheme can do to stop a transfer if a member insists on it. “But they can point out to the member where the risks are and can point out for example the difficulty they are having in finding anything out about the scheme that the person is going to.
The Regulator is also considering whether to require trustees of the schemes which are offering the full range of freedom and choice to members to give specific risk warnings to members.
”Trustees need to give information to scheme members to enable them to make informed decisions”
These risk warnings “would be very much aligned with the ones that the FCA requires its providers to give,” says Titcomb. For example, members hoping to take out their money would be asked whether they have made provision for their dependants.
However, equally, she points out that the government’s freedom and choice agenda is about freeing up pension savings – “particularly so that people can get hold of the smaller pots and that type of thing and use them as they need to.”
Most defined benefit trustees are fighting battles on many fronts. Scheme funding has been precarious in recent months, with consultant Mercer reporting “huge volatility” over the course of May.
What advice does Titcomb have for underfunded schemes? “I think they, as we do, have to have regard to the employer’s position,” she says. “They will want to try and ensure that the covenant is strong and remains strong so if the covenant for some reason is being weakened then they will want to look perhaps for extra contributions or something like that.
“But I would say the whole way of managing DB and DB funding does allow flexibility. You can vary the duration of a recovery period, you can increase regular contributions or a lump sum contribution. You can adjust your investment risk appetite.
“There is flexibility for trustees here, it isn’t all about just pulling one lever”
“Talk to us if it’s appropriate, because we can show flexibility and we work behind the scenes a lot with schemes who are facing funding challenges. Often it only becomes apparent if we have to use our enforcement powers, say we publish a Section 89 report on a particular situation, but the vast majority of our DB work is done behind the scenes, working creatively with schemes, with trustees, with their advisers, with their employers, to try and get this balance right.”
This message is clear from the Regulator’s latest funding statement, which was published in May (click here to read more). It sends a clear message to trustees that trustees must consider the employer’s financial position and capacity for growth when making decisions.
“What we’re emphasising is that there is flexibility for trustees here, it isn’t all about just pulling one lever,” Titcomb says. “They’ve got to think about the funding, they’ve got to think about any recovery plan and its duration so how can they use time, they’ve got to think about their investment risk appetite and they’ve got to understand the strength of the employer’s covenant.”
Getting good advice and maintaining a focus on integrated risk management is crucial, Titcomb believes.
The view from Europe
Titcomb won’t be drawn on one big issue of the day: whether a pan-European approach to pension scheme funding (the so-called “holistic balance sheet”) is a good idea (for a full briefing click here).
Industry bodies such as the National Association of Pension Funds have been vociferous in their opposition. The NAPF argues that cross-European valuation methodologies and scheme structures are very different and that introducing one method of valuing scheme assets would leave UK pension schemes scrambling into low-risk, short-term asset classes to recover even steeper shortfalls. This would come at the expense of investing in equities and other long-term growth-generating asset classes, it is argued.
Asked for her view on the holistic balance sheet, Titcomb says: “At the moment we are at the information gathering stage so let’s see where that goes.”
The Pensions Regulator is a member of EIOPA’s board of supervisors, and Titcomb attends their meetings when there are pension items on the agenda – as was the case when EIOPA decided to launch a stress test to model the impact of adopting the controversial new framework.
Titcomb’s team was involved in making sure the technicalities of the stress test were correct – and the Regulator is very keen to receive feedback from UK schemes. “There are only three or four countries that have significant workplace pension schemes so the UK’s input is absolutely vital in that,” she says. “We want to get schemes to contribute on the holistic balance sheet exercise. If further thinking is to be done about a supervisory regime and there’s a big question about whether anything does go ahead on that under the new Commission, then we want it to be informed on the basis of good data.
“We recognise that that’s quite a burden on schemes to ask them to complete that exercise. At the moment we’re working with them to try and help them and show them how to do it but we think it’s really important that European negotiations and European policymaking are informed by good data and good evidence.”