Embedded value – TPR’s Darran Burton on secondment at LCP

It’s not every day that the regulator goes on secondment inside a pension consultancy. So just how is TPR head of DC regulation Darran Burton finding life inside LCP? John Greenwood finds out

As fact-finding missions go, Darran Burton’s six-month part-time spell working inside pension consultancy LCP is a significant one. But despite the hefty commute from the south coast up to the capital, Burton sees the exercise as extremely profitable.

“Getting up at 5:30 in the morning for the commute is not hugely enjoyable but it’s been good for me to get “back to the floor” and see things at first hand in the industry,” he says, citing seeing first-hand how trustees and pension managers are dealing with the new DC Code of Practice as a key benefit from the initiative.

“This has given me some pointers into what more TPR could usefully do to support them in this.  Already I can see that there might be some merit in using those early adopters that have begun the scheme assessment process as case studies to help others who are thinking about it but not yet commenced,” he says.

“I have also been able to see management committees of contract-based schemes in action. TPR is a strong advocate of management committees and the role they can play in strengthening the governance in contract-based schemes.  We produced a guide in 2013 to help employers who are thinking of setting up management committees that sets out a template terms of reference for a committee, and the areas in which the committee can best support the delivery of a good member outcome. So it has been interesting to see how a real life management committee operates,” says Burton.

And has seeing a benefits consultancy from the inside surprised him in any way?

“It was difficult to know what to expect before I came. One thing that pleasantly surprised me is the desire by schemes to want to comply with the new DC Code of Practice.  As ever, when you produce something new, there are critics who like to suggest that something else might have been better. It was no different when we produced the new code, but most of that criticism didn’t come from trustees, it came from other people in the industry. The trustees that I have spoken to seem to like the fact that there are some standards they can aspire to for their members, and they want show their members that they are in a good quality scheme. And that, of course, is the regulator’s goal: to have people automatically enrolled into good quality, value for money scheme that delivers them a good outcome,” he says.

Darran Burton, TPR
Darran Burton, TPR

“Schemes are assessing themselves against the code and guidance and are intending to issue an annual governance statement – this is very encouraging and although it is not yet possible to tell how widespread this is, I am sure more and more schemes will come to realise the value in doing it and get on board,” he adds.

Burton sees the secondment exercise as offering a unique perspective. “Our DC Practitioner Panel plays an important role in helping us understand how our educational material can be put into action. But the panel is made up of pensions and industry experts, so being on secondment allows me to better access the people that play the key roles in delivering successful workplace pensions – the employers and trustees. 

“These are the people at the sharp end with whom responsibility actually sits for delivering a good outcome for members.  We have worked hard to design and deliver our DC regulatory approach, encompassing the DC quality features, the DC Code of Practice, the DC Guidance and the independent assurance of master trusts. Time on secondment with the industry gives me a chance to get out and assess its impact,” he says.

So why did TPR choose LCP?

“I wanted a firm that would have access to a variety of employers and trustees.  There is no point in me only getting a look at a subset of the market – I need to get to see big and small alike and LCP’s client base offers this opportunity.  I also wanted to have a good look at the inner workings of a consultancy so I can really see how it functions and operates.  An organisation any bigger than LCP and I would not have got the insight that I expect to get here – and any smaller probably would not have given me a fair impression,” says Burton, adding that he has no plans personally to go into other firms on a similar basis.

“Another factor is that LCP offers impartial advice; they do not offer their own product as a solution, such as fiduciary management or annuity bureau. That was an important consideration when we were looking at options for the secondment.”

And has his time at LCP seen him focusing on the under the bonnet charges within funds, typically fund manager charges, that have started to emerge in the last couple of years – such as research paid for through bundled commissions, questions over currency exchange rates for non-sterling equity purchases and stock lending?

“The regulator wants to see full, transparent and consistent disclosure of costs and charges that affect a member’s pension pot. Knowing this is essential for trustees and those on the ‘demand side’ to gauge whether they’re getting value for money from people providing the services to the scheme. The industry is trying to put its house in order but it can still be frustrating for those trying to drill down below the annual management charge or total expense ratio.

The government is dealing with charges and disclosure through the DWP’s Command Paper.  TPR has engaged with DWP on the paper and its contents and we are pleased that DWP is tackling some long-standing issues.  In the Command Paper DWP commits to looking at the issues of trading costs in 2017.  My focus at LCP has been on assessing the impact of the new DC Code of Practice and the expectation that schemes will assess themselves against the Code and the DC quality features,” he says.

He rejects criticism of the recently launched master trust assurance framework as being too expensive and overburdening the industry with regulation.

“The consultation was broadly supportive of the approach. Some people have been vocal in the media that it is a burden for the good schemes already doing these things, but as it’s voluntary it could be ignored by the poorer schemes, and not present a sufficient barrier to entry.  I think in a deregulatory environment, master trust assurance is a proportionate approach. It would be less costly for schemes than an alternative approach such as licensing.

Darran Burton, TPR
Darran Burton, TPR

“Our focus is very much upon improving governance standards so schemes are able to attain good outcomes for retirement savers. I believe it will drive market behavior and act as a barrier to entry because the good schemes that are serious about playing in this sector will want to demonstrate to employers and consumers that they have achieved the accreditation. The control objectives in the assurance framework are based on the regulator’s 31 DC principles – 22 of which have a direct underpin in pensions legislation. If schemes can’t display these, there’s likely to be a breach in legislation. So at this time, I think it strikes the right balance, and audit is a good way for schemes to show to potential customers that they are being run to a high standard,” says Burton.