Jonathan Stapleton speaks to TPR's David Fairs about the organisation's plans for the year ahead, its work around consolidation and the rationale behind one-to-one supervision
At first glance, it seems strange that someone who has been working at KPMG for almost 23 years - almost 20 as partner - should decide to make the move from poacher to gamekeeper and become executive director for regulatory policy, analysis and advice at The Pensions Regulator (TPR).
Yet this is exactly the move David Fairs made last year when he left his role as a partner at the professional services firm to join the regulator in July.
Fairs explains that his previous role as chairman of the Association of Consulting Actuaries got him very involved in the policy area and he had a strong desire "to do something around changing pensions for the better" - noting that, in this context, going to TPR seemed a very good idea, especially given the number of big ticket items currently on the regulatory agenda.
But while Fair's policy team has been kept particularly busy over the past few months helping with the Department for Work and Pensions' consultations on collective defined contribution schemes and its more recent one on defined benefit (DB) consolidation, it is also looking at trustee governance - and is especially keen to find ways in which to improve the governance of smaller schemes, which Fairs says, is "falling significantly short of where we would like it to be".
However, one thing that is likely to help in this regard, especially with regards to smaller defined contribution (DC) schemes, is the master trust authorisation process, which began in October last year.
As Fairs explains: "We have now got the opportunity to put some pressure on those schemes to improve their governance but also with the suggestion that if they don't want to continue to run their schemes then master trusts, once they have been authorised, will be a good destination for them."
He adds: "We know that for some of the small schemes, the trustees think they are doing a good job - and some of them are - but actually where they are very small schemes it is difficult to see that they are delivering great value for money for the members in those schemes, whereas in a master trust environment, you have the opportunity to benefit from economies of scale."
TPR has also been working with the Association of Professional Pension Trustees, the Pensions and Lifetime Savings Association, the Pensions Management Institute and other bodies that are looking at standards and accreditation for professional trustees - a process it is supportive of.
Fairs says: "We see quite variable standards within professional trustees so this is about setting a benchmark of what good looks like in terms of professional trusteeship and having an accreditation process in place."
The regulator is now looking at how it can use that accreditation more broadly and Fairs says the watchdog will be looking to consult on the issue in spring - asking questions around a range of areas, including whether it would be appropriate for all trustee boards to have a professional trustee on them and what would be the challenges and benefits of such a move.
Fairs says TPR is also going to look more closely at the growing use of sole trustees. He explains: "Quite often, sole trustees are appointed by the sponsoring employer and we're starting to think about whether trustees appointed in that way give robust challenge back to the sponsoring employer in funding valuations and in other areas.
"We will be looking more closely at that and, in the course of the year when actuarial valuations are being filed, will probably be having a much closer look at those schemes with a sole trustee and getting ourselves comfortable that the right level of debate and challenge has been made around funding positions."
Position David Fairs is executive director for regulatory policy, analysis and advice at The Pensions Regulator, a role he began in July 2018. In addition to this he is a member of the board of supervisors of the European Insurance and Occupational Pensions Authority and chairman of the pensions working group of the Joint Forum for Actuarial Regulation. He is also an advisory board member for the Association for Business Psychologists and the University of Essex's department of mathematics.
Previously Fairs was at KPMG for 23 years prior to beginning his role at TPR, having previously worked for Aon Consulting. He was chairman of the Association of Consulting Actuaries between 2014 and 2016, and is also a past chairman of the Actuaries Club and the Joint Industry Forum for Workplace Pensions.
The regulator is also concerned about the quality of scheme administration - especially at a time when both schemes themselves and third-party administration providers are consolidating, meaning that if something goes wrong with administration it could impact many more people.
Fairs says: "We have consolidation of providers, we have consolidation within the schemes themselves and, at the same time, there are challenges around privacy and security, not just within pensions but more broadly."
He says the regulator is also concerned not only about the amount of personal information administrators have, which he says could be quite vulnerable should it come under attack, but also about the quality of administration.
"We're beginning to consider whether we should have greater regulatory grip over administrators - at the moment, we don't have any specific powers and there is no authorisation regime for administrators - but we are starting to think about some of the issues not just around administrators but also the systems that those administrators use as well."
In addition to this, TPR is working on a new DB funding code and has just set up a panel of nine experts to help it formulate and challenge some of the ideas that it is developing ahead of a consultation in spring. It is also in an early "test and learn" phase of its one-to-one supervisory regime, which is being introduced for around 25 of the country's largest "strategically important" pension schemes.
Fairs explains the approach. He says: "What we are hoping to do is have a dialogue with the trustees and sponsoring employers of these larger schemes, understanding the activities that might impact on member outcomes, but also allowing them to get a view on how we would regard any activity they are planning."
He adds: "By having this constant dialogue with these schemes, we get to understand them and guide them as to what we think is appropriate and this then frees up resources for us to look at other areas."
Indeed, while TPR is looking to ramp up the number of schemes subject to one-to-one or flexible supervision, it will also use this project to transform how it works across the piece - allowing the regulator to focus on more targeted interventions for other schemes.
One example of this focus on specific issues is a letter TPR sent to 50 schemes towards the end of last year to express its concerns around the level of dividends that were being paid by the sponsor compared to the level of contributions going into the scheme.
Fairs says: "What you will see from us going forward are a series of these types of interventions where we look at a specific issue and write to those schemes we think might fall into scope and ask them to explain to us what is happening and whether what we think is happening is actually the case. It might be that, once we get that information back, we are perfectly satisfied; for others we might provide some greater guidance, and in some cases, we might take regulatory action."
He adds: "One-to-one supervision allows us to look at the issues some of the largest schemes are facing and then deal with particular issues on a very streamlined and efficient basis.
"Through doing that, we think we will be able to get to many more schemes, understand what's operating in those schemes and get to more of the issues that we need to be looking at."
Clearer, quicker and tougher
Fairs concludes by talking a little about the regulator's clearer, quicker and tougher approach to regulating pensions - an approach that is now well-established enough for it to have garnered its own acronym in regulatory circles, ‘CQT'.
But, while the watchdog has certainly been both tougher and quicker, Fairs says there is still work to do on being clearer - and notes that, while TPR revamped its website last year, it is now looking at its guidance and the expectations it sets for trustees.
Fairs says: "The website has been made cleaner and easier to access but there is some further work that needs to be done looking at the guidance in particular to make that much clearer. That is part of our ‘clearer' message so while we talk about, for instance, smaller DB and DC schemes and we are approaching them to say we want them to improve their governance, we will be setting out much more clearly how they can achieve that.
"Yes, we are going to be tougher, yes, we are going to be quicker, but we are also trying to help people to get to a better place if that is what they want to do."
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