Pensions World

Our legislators have been overindulging in regulation again says Robin Ellison, Pinsent Masons

The whole point of a winter festival is to overdo it. Certainly in the northern climes, the grey skies and short days make it almost imperative to eat too much and drink too much. It is too cold and wet to work on the farm and we all need something to keep us going until the spring. But we all know at the same time that we will suffer as a result of overindulgence. A glass of whisky is refreshing; a bottle rots the liver. A chocolate or two raises the spirits; a box of them hits the hips.

Winter overindulgence now seems to be afflicting our legislators. Maybe their life also seems a little dull or disappointing. So they are producing more rules and controls to fill their time before the spring. It is all very curious, since both the UK government and the EU administration have programmes to reduce the volume and complexity of regulation, neither of which seems to be having any impact on the regulatory culture.

Too much

To look at one recent UK example, the Pension Protection Fund (PPF) has produced guidance for funds entering the Financial Assistance Scheme (FAS) or the PPF in relation to the equalisation of guaranteed minimum pensions (GMPs). Younger readers may not have the faintest idea what the topic is about – and older readers know enough not to care.

In very simple terms, pension schemes that contracted out of the state second pension – or its predecessor, the State Earnings Related Pensions Scheme (SERPS) – were faced with a conundrum. They were required under the Barber principle established in a European court case in 1990 to equalise the pension for men and women – and in particular the pension age in the pension scheme. But the contracting out rules required them also to reflect the state pension age (which has different ages) in relation to the contracted out benefits. It was not possible therefore to increase the pension age for women under the rules or reduce that for men. Trying to reconcile the irreconcilable proved too difficult for actuaries or the government and, although there have been a couple of cases in the courts, it also proved too hard for most members to complain about it or explain to the court what the answer might be. So it is a problem that everyone knew was not fixable and is in practice usually ignored to everyone’s satisfaction – except it seems that of the PPF.

It has just issued an astonishing document, around 160 pages long, of immense complexity, demanding that pension schemes that might be entering the FAS or the PPF conduct an information audit and perform additional calculations to try and resolve the issue – this, of course, in relation to schemes in which there is already a deficit and in which there is often deficient record keeping. What the document should have said (if it was necessary at all, which is doubtful) is that actuaries might want to factor in an estimate of the cost of equalisation, just using their usual finger in the air approach. What a waste of a small grove of the Amazon. What a waste of pension scheme resources. And how foolish we were not to respond to the consultations without making our views clear that the issue should be left to die a quiet death.

Indigestible

Meanwhile (1), another gigantic document has emerged from the European Insurance and Occupational Pensions Authority (EIOPA). I have not had the pleasure of seeing their offices, but I am guessing they are rather comfortable. From there they have issued 550 pages to discuss amending the European Pensions Directive (also known as the IORPS Directive) which actually does not need amending very much or at all (except reducing some of the requirements). It suffers from a lack of underlying policy drivers, evidence that the existing arrangements are in need of reform, inadequate time to respond to the consultation (if you really had the will to do so) and a complete failure to respond to the EU Commission’s determination to reduce regulation.

Meanwhile (2) the Department for Work and Pensions (DWP) has issued a rather grim guide to equal treatment in relation to the Gender Recognition Act, in order for certain transgender people to claim their pension early. Looking at the list of complex and painful surgical procedures you have to go through to be able to claim your pension early (as a man), it is not surprising that, in practice, most people decide to wait. The good news is that the DWP has learnt how to write a document in under two pages.

Meanwhile (3) EIOPA has established a Board of Appeal to which to appeal if we do not like what they do. They are sharing it with other ESAs (European Supervisory Authorities), including the European Securities and Markets Authority and the European Banking Authority. They are now looking for members. If you fancy a decent lunch from time to time in either Frankfurt or Brussels (and the food should be better than that in Brighton or Croydon), give them a call now. The advert does not say what the pay is, but at least you will have the chance to criticise EIOPA for excessively long documents over a plate of frites.

And finally, meanwhile (4) gives comfort to you and me if not to judges; a recent case in the European Court of Justice suggests that judges cannot be exempted from personal liability for intentional fault or gross negligence in certain cases.

Oh frabjous day if so – and presumably the rule extends to directors of the PPF, Nest, FSA, the Pensions Regulator, HM Revenue & Customs etc. The decision is only available in Italian at the date of writing, so the interpretation of the decision might be flawed, but if it is correct it should mean that regulators might be easier going on the rest of us now.

Dyspepsia

These expendable and superfluous documents emerge because there seems to be no single person in charge; they emerge from committees who feel they ought to do something about something. And because they are the proverbial man with a hammer to whom every problem is a nail (in other words, if you are a legislator or regulator, you need to legislate or regulate), they ignore the cost to the regulated or the legislated. What is lacking in these cases is any genuine strategic user feedback. Anyone looking at these documents from the outside at a senior level would have concluded that they were unnecessary or that if resources were limited (which they do not seem to be among regulators), there were other priorities.

The issue of these documents is an indulgence. But what is really unfair is that, while the overindulgence is that of the legislators, the ensuing dyspepsia is that of the legislatees.

Sources
Pension Protection Fund, Statement on equalisation for GMPs and the application of a statutory minimum to PPF compensation for schemes in a PPF assessment period, November 2011, 185pp

Office for National Statistics, Occupational Pension Schemes Annual Report 2010, October 2011, 80pp

Nick Clegg, DPM announces plans to cut red tape for small business, 26 October 2011, speech www.dpm.cabinetoffice.gov.uk/news

European Insurance and Occupational Pensions Authority, Response to call for advice on the review of Directive 2003/41/EC: second consultation, EIOPA-CP-11/006, 25 October 2011

State pension: equal treatment rights for social security purposes for periods before the Gender Recognition Act 2004 came into force, DWP, November 2011

Michigan Public Pensions [2011] 098 PBLR (United States: Michigan: Supreme Court, 2011 November 18)

Commission v Italy, ECJ Case C-379/10, 24 November 2011

Lord Neuberger of Abbotsbury (Master of the Rolls) General, equal and certain: law reform today and tomorrow, 2011 Annual Lord Renton Lecture (Statute Law Society), 28 November 2011 (on the excesses of regulation)