Whilst writing today’s edition of Pensions News (PN), PN was considering that one of the better things about writing PN was the scope the writer has to pontificate or, as some might say, “go off on one”.  PN then decided to write this piece as a tribute to the very-much-alive (thankfully) Mr Clive James.

There is a lot to be said for and about pontification.  One of them is that the pontificator needs to be aware that he or she will not be able to solve any great pension problem by writing a short article.  Let’s hope that’s something everyone knows.  There is more to it even than that; the pontificator should appreciate that he or she will be unable to do much more than touch on a complex subject in anything shorter than a long article or booklet.  There are probably two main reasons for this: the first is that great pension problems are great because they are complex and abstruse.  The other reason is connected with what lies within the mind of the pontificator who has or tends to have a particular tone to go with the pontification in his or her writing.  The tone generally gives the impression that the writer knows what he or she is talking about.  With some pontificators, this tone is at variance with the pontificator’s personality and in some cases (PN could be one such case), the difference between the tone and the personality is so stark that even someone like PN could spot it. 

PN was writing this at his computer in much the same way that PN imagines Plato would have done had he had a personal computer.  PN then looked up at his screen and realised that he had written an entire paragraph in capitals and typed part of the last sentence “taht PBN imangies Palot wwou;d have dine”.  Bouncing his forehead off his keyboard, PN then made the terrible mistake of looking around his room (incidentally, that’s the spare room in PN’s house which doubles as an office – not the actual pristine, organised space he occupies in his employer’s open-plan office) and becoming distracted.  The spare room in PN’s house is in chaos.  It is as if a small but highly destructive whirlwind had made its way into the house, sauntered upstairs and started spinning at that point; i.e. once inside the room PN occupies.  PN’s dilemma is this; how does an individual unable to sort out his own room give the impression that he could resolve a major problem within professional pensions?  In PN’s room, there is an elderly cup.  The cup contains an assortment of pens.  These allow PN to make a note of something if someone happened to telephone him - or at least they would if they worked.  None of the pens in PN’s “pen cup” can be used for writing.  During the summer of (PN thinks) 2014, PN resolved to throw away the non-working pens in the ancient pen cup but he got distracted. PN can only imagine that the problem of the pen cup is nastier than the problems facing the Pension Protection Fund (PPF) as it is this subject that PN turned his mind and his (functioning) pen to in shelving the cup full of malfunctioning pens.

The PPF was constituted under the Pensions Act 2004 (you are cordially invited to read Part 2, sections 107 to 220 of the Act if you are interested enough to want to know more) and was, allegedly, the idea of or promoted by Mr Frank Field MP; the same Mr Frank Field MP who is embroiled in argument with Sir Phillip Green over the British Home Stores Pension Scheme (BHSPS).  The idea is that the PPF acts as a metaphorical safety net so that, if an employer became insolvent and left behind an underfunded pension scheme, the PPF would ensure that benefits were paid to scheme members up to a certain maximum (which the PPF determines) and subject to certain conditions being met.  The “conditions” to be met include the scheme in question being eligible for entry into the PPF.  Whether the scheme is eligible is determined as it goes through a period of assessment.  After this, usually, the PPF assumes formal responsibility for the scheme.  It follows that some schemes, devoid of a solvent sponsoring employer and with insufficient monies to pay benefits, end up not being assumed by the PPF.  You, the reader, may ask how the PPF is funded; you may be asking (whilst pounding the desk with clenched fist) whether the PPF is something else the taxpayer has to pay for.  The PPF is funded through levies which are payable by private sector pension schemes.  There is a flat rate levy and a risk-based levy with schemes assessed as “high risk” having to pay a higher risk-based levy.  Successive Governments have made it clear or clear-ish that the State will not pay for the PPF.  Feeling better now Mr/ Ms Taxpayer?  There are a number of problems with the principles on which the PPF is founded, many of which have been the subject of debate since.…well, since 2004 really.  One problem is that employers with little money and poorly funded schemes have to pay most.  Paying a high levy might make penurious employers more likely to fail financially.  Relatively rich employers with comparatively well-funded schemes (on the other hand) are almost by definition not going to benefit from the PPF.  In this regard, the PPF is not analogous with (for instance) motor car insurance.  Even if one is a safe driver, one could easily be hit by a reckless driver or one’s automobile could be stolen.  Insurance is, therefore, crucial. The same principle is not directly applicable to pension schemes.  Another PPF issue is that large insolvencies are likely to put great strain on the its resources.  This indicates that, where two quite large problems turn up more or less together (think BHSPS and British Steel Pension Scheme), their combined effect could cause financial strain for the PPF itself – if it had to assume responsibility for them.  This might perhaps explain the gangs of nervous politicians, headed by an increasingly anxious Mr Frank Field MP, as they try to get Sir Phillip Green to hand over (as the Financial Times really wanted to put it) “flippin’ great wadges of cash” to prevent full responsibility for the BHSPS being assumed by the PPF. 

At this point, PN’s eyes flitted to an open drawer in his desk.  The drawer was open because of the weight of things in it (i.e. not because PN decided to open it).  One of the main things keeping the drawer open was a batch of diaries; nearly in date order and containing names and addresses which PN once resolved to put into his current diary or the “contacts” list in his mobile phone.  Resolving to “sort” his desk drawer another day, PN dragged his concentration back, kicking and screaming, to this piece of pontification only to be confronted by that name again; Mr Frank Field MP.  According to The Guardian of 20 September, Mr Field (in his capacity of Chair of the Work and Pensions Committee) had called on regulators to investigate the circumstances surrounding the acquisition of the Bernard Matthews turkey business (in administration) from the administrators. Remember Bernard Matthews and his turkeys?  The proposed transaction will see the business’ defined benefit pension scheme pass into the PPF.  The scheme has a deficit reported to be £16m which means (according to The Guardian - PN has not read the scheme accounts) that many members will be paid PPF benefits as opposed to the more generous “full” benefits the pension scheme itself would have pay if it had the money. Mr Field is exercised by the proposed transaction since it may, he says, promote a culture of corporate transactions structured in such a way as to leave pensions liabilities with the PPF, leaving the business and its (new) owners free to carry on making money.  Mr Field MP seems, however, to have overlooked the point that, in this case, the business will continue to employ the 2000+ employees who would otherwise probably lose their jobs.  Anyway; Mr Field MP’s fears about the development of a culture of the moral hazard are, PN hopes, unjustified.  Metaphorically riding to the rescue on a metaphorical white charger, the Pensions Regulator should prevent such transactions or at least require them to be structured in such a way as to minimise the risk to the PPF (ideally to zero). 

Satisfied that he was causing Mr Field MP to enjoy at least one more night of decent sleep, PN sat back, checked his ntoes….his noste….his ”notes” and drank from the cup at his side.  Smugness vanished as he took a mouthful of defunct pens.

Until next time……..