The Pensions Regulator will set up a series of panels to listen to industry, savers and employers on what measures to apply in relation to climate change, TPR’s new chair, Sarah Smart, has said, also setting out her approach to diversity and inclusion and value for money. 

 

The first industry person and first woman to chair the regulator, Smart introduced herself and her approach during a session at the Pensions and Lifetime Savings Association’s annual conference on Wednesday. 

 

 

During the interview session at the PLSA, Smart, who had been on the regulator’s board for five years before being made chair last June, appeared intent on dropping the ‘on message’ style the regulator has traditionally employed by suggesting that TPR does not have all the answers to the new challenges pension funds face, and that she wants TPR to move away from checking compliance to measuring change. 

 

"In the past perhaps we may have said... ‘Let's look at how many schemes have completed a compliance TCFD statement within the prescribed time’, but does that tell us anything about how that activity has mitigated the risk for savers? No,” she said. 

 

Instead, TPR will be looking to measure what its activity in relation to climate change has done to reduce the risk there for savers, she explained. “Now we don't have all the answers actually in those areas yet so one thing that we're going to do, and I'm delighted to announce this today, is that we are going to set up a series of panels whereby we can listen to industry, to savers and to employers to help us with some of these new questions that we're asking ourselves in this area, how we measure ourselves in relation to climate change,” she said.  

 

Smart said TPR’s role should be to constantly evaluate the risks in the pension system, quantify those risks and look at the regulatory tools it has, to see how it can best use these tools to mitigate those risks as much as possible - “and then very crucially measure the outcomes that we are achieving in a way that makes sense for savers and makes sense for industry, and have that constant feedback loop so that we can continue to refine what we're doing and make sure it's really delivering for safety”. 

 

  

The new chair was also questioned about her approach to diversity and inclusion by industry representatives, whose tone often betrayed a defensive stance. Smart argued that equality, diversity and inclusion brings huge benefits to boards as it ensures that regulators and trustees make the best decision for savers. 

 

She also pointed to the accusation of groupthink levelled at the government for its early Covid response as an example of where groupthink affects decision making. "A key element of diversity is trying to ensure that we don't fall into the traps of groupthink,” she said. Diversity “doesn't necessarily mean everybody has to look different, it's really about diversity of thought”, she added, noting however that diversity itself brings diversity of thought, and that diversity must go hand in hand with inclusion. 

 

Addressing what diversity should look like in the industry, she said there were “some really interesting questions to ask” - such as, “do we think that there should be a maximum term for trustees”, an idea she had already mooted before becoming chair. However, she also acknowledged that a balance may need to be struck between diversity and the availability of candidates: “What about the fact that a lot of schemes struggle to get member-nominated, employer-nominated trustees?”. Controlling for bias in MNT elections and ensuring diversity in local government pension committees were further areas where there are no easy answers, she noted. 

 

She suggested that the way the industry looks at experience – measuring it in years and looking for candidates mainly in certain sectors – may need to change. Smart did not accept that hiring boards or trustee firms are constrained by their applicant pools, instead saying they should consider how they can widen their pool to have more diverse candidates.  

 

“What are you doing about going out and bringing talent into the pool that's available?” she said. “We need to be a lot more active and thinking about, ‘What skills do I need and how do I test the right skills and how do I go and find the people who might have those who aren't in the traditional areas I've been looking’; and I know that's not easy, but we can work together to attract different sorts of people,” she said. 

 

 

The new chair also discussed value for money, which has come into much greater focus at both TPR and the Financial Conduct Authority. Smart acknowledged the difficulty of measuring outcomes that lie several decades in the future but said the solution must be to take temperature checks on the outcomes throughout the journey. 

 

“I know it's difficult. That's why we're doing a discussion paper,” as well as having a series of roundtables with industry "but this is something we need to tackle”, she said. 

 

With smaller schemes often having higher charges and being less able to access investment or administration opportunities, she said the majority have poorer governance, but feels the language about consolidation must change: “We're trying to move away from the thought that consolidation is only something that trustees consider or should be considering if they're not doing a good job.”  

 

Instead, trustees should always be thinking about what else is available in the market that might deliver better outcomes for savers – without this meaning that they have not done the best they can for savers. 

 

Smart encouraged trustees to look beyond the confines of their scheme in order to understand whether what they are doing for savers is enough: “If you only look within what you're doing and say, ‘Well I'm doing a good job here’, and you don't compare it to anything else that is available or any other opportunities, then it might be giving you a false sense of security.”