TPR rejects claim it pressured schemes to adopt LDI; ‘strong case’ for pro trustee authorisation

The Pensions Regulator (TPR) chief executive, Charles Counsell, has rejected claims that the regulator put pressure on defined benefit (DB) pension schemes to adopt liability-driven investments (LDI) when they didn’t feel it was appropriate.

Speaking at a session at the Work and Pensions Committee (WPC) on DB schemes with LDI, WPC chair, Stephen Timms, said to Counsell that some schemes had told the committee that they felt TPR had placed huge pressure on them to adopt LDI when they felt it was not appropriate.

Timms also said that schemes had told the WPC they were fearful that the pressure was likely to increase with TPR’s additional powers and penalties.

In response, Counsell said that he was not sure that he recognised the complaint.

“We don’t put huge pressure on schemes or advisers,” he said. “What we do is encourage them to manage the risks that they have got within their own individual scheme.

“It’s important to state that the underlying basis is scheme specific. I don’t recognise that we’ve put them under pressure. What we do is set out clear guidance and we expect them to take into account that guidance when they are looking at their specific circumstances.

“If we feel that schemes are not following the guidance we may well encourage them more strongly, but broadly we are expecting them to take their decisions that are appropriate for the particular circumstances of the scheme.”

Counsell noted that in the build up to the LDI crisis, it had believed that it had a reasonably robust response in place across pension schemes for what was a reasonably plausible scenario of a 100 basis point movement in gilt yields.

“Obviously, what happened was way beyond that and we’ve asked ourselves the question of what we have to learn from that,” he continued.

“It’s clear that the level of collateral wasn’t sufficient for what happened. Sometimes you have to take judgements as a regulator about how hard you push pension schemes.

“Quite often we are accused of putting too much burden on our regulated community, and you have to take a view of how much is adequate and how much is too much of a burden.”

Counsell conceded that it was a fair question about the lessons learnt about the degree to which smaller schemes understood the implications of the investments they were making, and that was a lesson that the regulator needed to take away and think about what it does about it.

He added that the regulator did not foresee the speed of the rise in gilt yields that happened at the end of September, and it recognised that now it has happened it will need to change the way the system works and acknowledged the need for a more robust system.

“I think it’s fair to say that we weren’t collecting systematic data around this before this happened and, in retrospect, perhaps we should have, and going forward we will be,” he noted.

“How we will do that we haven’t yet determined, but we are working on that at the moment.”

Later in the session, Counsell said that TPR, for some time, has believed that pension schemes should have a professional trustee sitting on their board, but the reality was that the capacity of the professional trustee market did not match the number of schemes.

For professional trustees, there is no authorisation regime, he noted, adding that there was a question about whether there should be an authorisation process around professional trustees.

Pressed further as to whether he was recommending that there should be an authorisation process for professional trustees, Counsell said: “I’m being slightly cautious about going that far because I realise there’s a lot to do to get there, but I think there is a strong case for it.”

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