“I’ve got a beautiful, bright yellow Beetle. And I mean properly bright. If you got in there with a hangover which, of course, I would never do you would probably struggle not to be sick.”
The Pensions Regulator executive director for defined-contribution June Mulroy is not exactly a stereotypical regulatory official. For a start, she’s a woman. She dresses flamboyantly. And she has pink hair. She also talks freely (which keeps the accompanying press officer on his toes).
But given Mulroy is tasked with kicking the pensions industry into action on some pretty sensitive and entrenched issues, such as pension charges and the disclosure of costs, being different might not be a bad place to start from.
She says: “We have had some very interesting conversations with people about what their charges are. Interesting in the Chinese sense. Nobody can really tell us what their charges are. We have done a lot of research, so we know some of the things that are underneath the charges. But we really had to dig to get people to be honest and open.
“There is an awful lot of Tommy Cooper that goes on when people try to describe charges but I do not think it is as complicated as certain people in the industry try to make out. It is no more complicated than forms of pricing are in any financial product.”
Mulroy is attempting to break through some of the jargon and complexity of the pension industry as she looks to improve both the quality and the comparability of DC schemes. A key plank of this work will be a blueprint for DC provision which will outline 11 basic principles that trustees, providers and employers will need to follow.
The regulator’s initial discussion paper, entitled, Enabling good outcomes in DC pension provision, published in January, identified six elements which it believes are important for achieving good outcomes for savers (see box above). The 11 principles will build on these elements.
Mulroy says: “We are coming out with 11 straightforward principles for DC schemes. From that, over the next few months, we will develop much more detail specifically for trustees, employers and providers. We have tried to capture the principles in simple language, so the opposite should obviously be wrong. So, for example, we will say ’assets should be safeguarded’the concept of assets not being safeguarded is obviously not right. “We will also outline a couple of principles about charging around transparency and simplicity.”
While the amount providers charge on pension products has inevitably grabbed the headlines in recent weeks, the regulator is equally focused on the costs incurred by providers. Mulroy says: “It is not just charges, it is costs as well. We need to get disclosure of what it is costing because we do not have a proper comparative market. Getting to that point is not going to be easy but it is absolutely doable.”
The regulator’s increased scrutiny of pension charges has led to it taking a tough stance on pension schemes which offer active member discounts.
In a statement to DC trustees, published in October, TPR warned pension schemes that it does not view active member discounts as “fair” or “acceptable”. The regulator takes the same view of AMDs offered through contract-based pension schemes.
Mulroy says providers have been guilty of ripping off deferred members by failing to reflect cost savings in the charges levied. She says: “We have found that deferred members have been paying an awful lot more for nothing there were no efforts made to find them and no efforts made to get information to them. Transaction charges in general have plummeted in the last 20 years but members do not seem to be getting any benefit from that. I think active member discounts have been seen too often and too easily as a way of making money.”
The regulator is urging DC trustees to become more engaged in the running of their pension scheme. It expects the role of the DC trustee to come under further scrutiny as auto-enrolment approa-ches, with millions of members set to join schemes which do not offer the same protections as defined-benefit pension schemes. Mulroy says: “There are times when DC trustees look as though they are in a bit of a Cinderella world, so we are just trying to warm them up a bit gently. Among the biggest differences are the members’ risks because they can be absolute in DC. So there are some pitfalls which we need DC trustees to be a bit more woken up about. With a DB scheme, the liability is that of the emp-loyer. so when people contribute, it is against the liability of the employer. You still have the employer covenant but behind that you have TPR and you have the Pension Protection Fund as a buffer as well.
“In DC, the buffer is not always as obvious as it might be and, in some products trustees might get themselves involved in, it is not there at all. So the Financial Services Compensation Scheme does not always click in. We need DC trustees to be more questioning and more engaged.”
As TPR moves away from its traditional role of regulating the diminishing world of DB pensions and towards DC, Mulroy says it will need to adjust its approach to reflect the size and diversity of the DC market. To do this, Mulroy says the regulator will look to segment the market. She says: “There cannot be a one-regulation-fits-all approach. There are about 9,000 DB schemes and a range of employers, so we have to be scheme-specific in that part.
“We have got 46,000 DC schemes and when you look at the extremes of the market, they are very extreme. You have got quite a lot of tiny SSAS schemes with enormous pots at one end and then you have got very large schemes with small pots.
“It is abundantly clear that we are going to have to segment the market in some way. In that segmentation, what does the role of the DC trustee become? If it is your own mone,y then presumably you are keeping an eye on it. If you are in other types of schemes very large or mid-range ones we may need to emphasise the role of trusteeship and guardianship in a different way.”
February 2011 to present: executive director for DC, governance and administration at The Pensions Regulator
2005-February 2011: executive director of business delivery at TPR
Mulroy is an ex-psychologist and chartered accountant and worked in big corporates and banking for over 17 years as a dealer/risk analysis specialist and consultant
She also worked in two NHS trusts, including the “flagship at the time” Chelsea and Westminster Hospital and has worked in Paris for the UN in Unesco.
The Pensions Regulator will produce 11 principles for good quality definedcontribution provision based on six key elements:
- appropriate decisions with regards pension contributions
- appropriate investment decisions
- efficient and effective administration of DC schemes
- protection of scheme assets
- value for money
- appropriate decisions on converting private pension savings into a retirement income.