POINTS OF LAW Seeing red

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POINTS OF LAW Seeing red

Robin Ellison, Pinsent Masons, responds to Steve Webb’s red tape challenge

In a nutshell

the government seems to be serious about simplifying the legal system for pensions
any reforms will fail if they are dedicated to minor adjustments to the framework or concentrate on the detail
the key to reform is to change the mindset of civil servants and regulators by ensuring they are properly trained in the principles of regulation.

Would our lives be much improved if puppets were in charge, rather than politicians? We might remember in particular the wisdom of Statler and Waldorf, from the Muppet Show (S: Have you ever been to a Witch Doctor? W: They’re all witch! Ever been to a poor doctor?). The thought was provoked because if you overhear any group of even young pension lawyers, actuaries or pension managers chatting about stuff, you could be forgiven for thinking you are listening to a reprise of those original grumpy old men in the balcony box.

The new muppets (a word that has recently acquired a contemporary resonance) complain about all sorts of things, but especially about the complexity of pensions regulation. They may need to get a life, but they also have a point (especially if they have been looking at the absurdity of recent guaranteed minimum pension equalisation (GMP) proposals).

Continuing complexity

Pensions regulatory and legislative complexity has been a running theme for many years; many will remember the simplification of s67 of the Pensions Act 1995 after Alan Pickering, a former chairman of the National Association of Pensions Funds (NAPF), was asked to advise on its redrafting. The former version was around 300 words long; the new revised simpler version was about 3,500 words.

But the continual complaint that complexity has been a major issue bedevilling the establishment of new schemes and the management of existing ones, has found a new audience. Steve Webb, the current pensions minister, seems to "get it".

He is also about to have a bit of a triumph; the government has announced that it will adopt one of his policies, the simplification of the state pension system. Going out will be the basic state pension, the state second pension, the pensions guarantee and the pensions credit (although sadly not auto-enrolment) and coming in is a single state pension at around £140 a week (hopefully not based on a contribution record).

Now the minister has turned his attention to the second of the three main reforms needed for the pension system (the third is taxation) and has called for ideas for simplification, as has the NAPF. He has issued a "red tape challenge" where all and any of us are invited to submit our ideas to reform, reduce and simplify the system. The minister has already, off his own bat, suggested that "aspirational" pensions might return (now also known as "DB-lite" or "DC+" or "Collective DC", although his own Sir Humphrey may have gently whispered "very brave, Minister" into his ear as he signed his red boxes).

So how should we answer the minister? Let us try and dismiss early on what will not work very well. The Department for Work and Pensions has already, in fact, in the Pensions Act 2011, tried to kill any suggestion of an aspirational pension system, although leaving the door open by a Henry VIII clause to allow it to do so if it wants to. And please let us not go down the route of trying to fine tune the existing regulations – that was the approach of the Pickering report over a decade ago and it did more harm than good. One reason is that the interconnection between each of the existing rules and regulations is so complex (just have a look at the rainbow of colours on the Perspective screen to see how complex) that changes just make it worse. So what might be done? (see Box.)

The advantage of all this would be to:

slow down the amount of legislation and regulation
make such regulation understandable
reduce the amount of grandstanding legislation and make any changes as amendments to a code
make ministers, MPs and civil servants responsible for what they do and
change the mindset of regulators, so that regulation should be a last rather than a first resort; and that if regulation is required it should be short and simple.

Trying to fine tune the existing regulations is a fool’s game; we could be at it forever and make minimal progress – especially since while we are slaughtering one exhausted regulation at the finishing post, up the back straight comes a thundering herd of new ones. More sensible would be for the minister to set out a full strategy for pensions, including state pensions, private pensions, the taxation of pensions and the financial treatment of older people, and then design a legal code towards that end. And at the same time he should train his civil servants and regulators on the principles of regulation so as to improve their mindset. Other countries do it, why can’t we?

As one of the more recent members of the puppet fraternity, Aleksandr Orlov, might say: "Simples!"

Changing the mindset

Here are ten ideas which might be explored. And none of them looks at redrafting or repealing. What they depend on is changing the mindset.

First, ministers, civil servants and MPs should attend an exhibition of how complicated the present system is; they really do not believe it in their heart of hearts. They should not be (but will say they are) too busy to spend the time (say 2 hours) looking at a screen to understand what they have done.
MPs and ministers should sign a form of "Hippocratic oath" to say that when they vote for something, they will do no harm, or that if they do, they will identify it. Doctors know that sometimes (indeed usually) the best cure is to do nothing, although it is sometimes shaming to say so. And ministers like to leave their mark, rather like a dog on a lamp post. But they should resist. The best minister is a lazy minister (although not always – the simplification of the state pension is a worthy aim).
MPs (and ministers) should not vote in Parliament for anything they do not understand. That would have killed the absurd anti-forestalling arrangements (which have now been ditched). This could not be tested, but MPs would be on their honour (no, really) to do this. It would also avoid the ridiculous spectacle of MPs rushing to go through the lobbies to vote on something and being told which lobby to go through because not only did they not understand the detail of the legislation specified, but had no idea what the legislation was about in the first place.
MPs should have the same surcharging arrangements that apply to local government; if the cost emerges as something other than indicated in the regulatory impact assessment, and they voted for it, then they would be notionally surcharged the next time they stood for election, and they would have that stated on their election forms. There is much to commend the Michael Winner/David Cameron approach to legislation ("calm down, dear").
MPs would have to swear that their responsibility to the country was greater than that to their party. That may make the management of government and the whips that much more difficult, but it would make the MPs more responsible for what they do.
MPs should have a real job as well as being an MP; alternatively they should do work experience (rather like the Tesco or John Lewis directors who have to do shelf stacking or work as a cashier once a year) to understand the impact of their activities on real life.
MPs and civil servants would sign a code of practice that future legislation should only be brought forward if it fits an already established strategic framework, rather than being ad hoc or opportunistic and populist. The legislation would then fit within a logical structure and the astonishing complexity we see in day to day law would gradually fall away.
Regulators’ rules should be part of any regulatory budget, rather than separate. Over the years it has proved convenient for government to have quangos or non-departmental public bodies to legislate, for political purposes. These are not recognised as being part of the civil service (for numbers purposes) or part of the public expenditure (often because of their separate taxing powers, like the PPF levy, which pays for the Pension Protection Fund and the Pensions Regulator (TPR)). We might then be spared the otiose simplicisms of the Pensions Regulator’s guidance on scheme data, which requires higher standards than that of the national insurance system for example, or DC schemes, and the highly pointless PPF suggestions on the equalisation of GMPs (for which, Steve Webb and Angela Eagle, stand up and make confession also).
Cost-benefit should be at the heart of all regulation. Can TPR demonstrate that if it were not there the system would be worse than it is, and that the laws of contract, trust and crime are insufficient?
(Most important) all legislators and regulators would need to complete a diploma in regulation before they become involved in actually making rules. Most lawyers, brain surgeons and bus drivers have to pass a test before they have an opportunity to do harm. That does not guarantee that they are perfect, but it helps public safety. Meanwhile, civil servants and MPs can pass laws without quite understanding the laws of unintended consequences, the laws of other people’s money, the laws of destructive complexity and other regulatory truths.

Sources

www.redtapechallenge.cabinetoffice.gov.uk/pensions
www.redtapechallenge.cabinetoffice.gov.uk/home/index/
NAPF, NAPF call for evidence on better regulation: responding to the red tape challenge, February 2012
Tom Selby, “Steve Webb: help us cut pensions red tape”, Money Marketing, 6 December 2011
Alan Pickering, The Pickering report: A simpler way to better pensions, November 2002
Department for Business, One-in, One-out: Third Statement of New Regulation, February 2012
Christopher Snowdon, Plain packaging: commercial expression, anti-smoking extremism and the risks of hyper-regulation, Adam Smith Institute Research, 2012
Editorial, “A tangled Webb?: does Steve Webb risk pushing too far, too fast, on pensions reform?”, Pensions Insight, March 2012

Robin Ellison is a partner at Pinsent Masons;
robin.ellison@pinsentmasons.com