Robin Ellison – Regulators in the firing line

Pensions in pictures

There's a fashionable penchant in some of the larger institutions for investing in housing, often for rent. The aspiration is obviously to be commended, but as the government is fond of pointing out, the policy challenge in trying to respond to the needs of young would-be house-buyers is not supply, but the planning system (and maybe stamp duty).

We'll have to wait and see whether regulatory reform will make much of a difference, but a wonderful book has just come out in the States. It has the unprepossessing title, reflecting a Trump trope on hydrocarbons, Build, Baby, Build: The science and ethics of housing regulation' (Bryan Caplan and Ady Branzei, Cato Institute, 2024). It explains, using economics 101, how to fix the planning system, and thus the housing crises not only of the UK and the US but worldwide; why, it asks, in countries like the US and Australia, with virtually unlimited land, is there a housing shortage?

One solution is offered by advertising genius Rory Sutherland – see: The Wiki Man: The case for ‘Areas of Outstanding Natural Ugliness' (The Spectator, 25 January 2025) – who noted that:

"I would like to conduct a simple theoretical exercise to explain Britain's complete lack of economic growth. All you need to do is to take the sum of its built infrastructure and to ask what percentage of existing houses, roads, railways, airports, pubs, cafes, restaurants, castles or cathedrals would receive planning permission if they did not exist already. My guess is it's about 5 to 10 per cent. Which means this country is running on infrastructure which only exists because it is ‘grandfathered' in. It isn't land that's scarce, it's planning permission."

The Cato book gives a similar answer. It's the regulations, stupid. Angela Rayner, minister for housing, now trying to modernise the planning system, might agree with both Sutherland and Cato and do worse than buy a few thousand copies of the book and the article and send them to our own nimbys and regulators.

Just to mention, for those of us less expert in housing economics and the planning system, the Cato book is written as a graphic novel, rather like the Marvel comics, although the heroes thankfully don't wear tight underwear. The philosophy articulated in the book won't be to everyone's taste (although it deals thoroughly with the arguments in favour of planning laws (overbuilding, design, infrastructures, environmental etc)), but if Steve Bee, the famous pensions cartoonist, is still in the business, he could do worse than produce a sister volume in the pensions field. We might then reduce the pensions rulebook to a couple of dozen pages at the least. And it would be fun to read or even just look at the pictures.

The publication format might also apply elsewhere. If HMRC were forced to produce their rules similarly, ie in graphic form, it might result in some real simplification; the impenetrable Finance (No 2) Act 2024 (on the abolition of the lifetime allowance (LTA)) could then be written in one page rather than 57. And we might understand it.

Regulators in the firing line...

Trying to reform the regulatory system is proving hard, even for a government determined to do so. Our own pressure groups struggle to make any impression, and the reasons why were partly explained in a book in 1965 called The Logic of Collective Action by Mancur Olsen. Oddly the book was about the abusive strength of trade bodies versus the impotence of consumer groups, although in our case it might be the reverse.

Part of the problem is the skill with which regulators are managing to conduct their defence against government disapproval, partly by enjoying the fact that the UK is unlikely to adopt the extremes of the behaviour of the Trump administration in trying to reduce the size of the state.

But time is not on their side. Already senior officials of regulators who have not got the message have been gently prised out; senior people at the Competition and Markets Authority, the absurd Financial Ombudsman Service, the Payments Services Regulator, the Solicitors Regulatory Authority and several others have gone before their time in the last month or so. And it's partly because they have not smelled the coffee or to mix some complicated metaphors, the elephant in the room. The smell is of regulatory failure and in particular overreach.

The Pensions Regulator (TPR) may not have realised that it is also in the firing line – it continues to try to expand its brief to areas which it was not established to operate in. It has changed its mantra (it was ‘clearer, quicker tougher' in 2018 and is now ‘protect enhance innovate' (see its blog of 17 February) which is one way to modernise, but it remains subject to the same political forces that affect its peers and unless it upgrades its approach might find itself in similar difficulties. It is already losing its chair before due time, and may find it difficult in the coming months to recruit a new chair with adequate political antennae. Meanwhile maybe there should be a code on mantras to make them strong and stable.

TPR and other regulators

There is (not for much longer) a small club of regulators known as the UK Regulators' Network, where mid-managers from TPR meet their peers occasionally to see what new jobs are around. They also exchange war stories including: 

OfWat and the courts

Thames Water has been an expensive learning lesson for some pension fund investors; investing in infrastructure has not been encouraged by the Thames story – and not enhanced by its regulator. OfWat has to maintain an uneasy balance between the needs of the provider and the needs of the consumer, but the least it might do would be to turn up in court when asked to do so (Gill Plimmir and Robert Smith, Thames Water judge rebukes Ofwat, FT, 8 February 2025). 

PPF and surpluses

The PPF is reducing its levy this year to £45m, based partly on the fact that it has tens of billions surplus in its kitty. It is one of the better run regulators, but so it should be, given its over-healthy financial position. The emergence of its net wealth, nearly as much as that of a Russian oligarch, raises at least two questions. First does the PPF really need a change in legislation to reduce its levy any further, as it thinks it does. That seems odd – it said that last time, but it may already have the power to charge us all a peppercorn (which are actually now quite expensive in Waitrose), and then, if it had an excess of spices, just not collect it. That would keep it legal. And second, at some stage it will need to issue us a paper describing its proposals for the distribution of its surplus, acquired in practice and with hindsight, through overcharging us in previous levies. Maybe we should all agree to convert the PPF into a trust and, using the largely forgotten Rule in Saunders v Vautier, then break up the trust and take the money. It might be enough to help out Thames water for a year or two.

Meanwhile the government already has an eye of those DB plans surpluses; it has issued proposals on what to do about surplus in schemes (see Pension reforms to go further to unlock billions to drive growth and boost working peoples' pension pots - GOV.UK). So far it has received a dusty answer, but the PPF assets look vulnerable. 

Are you dead yet? ONS and pensions data

Elon Musk has a new Tesla on the market, but that has not distracted him from the issue of overpayment of US pensions; there are hundreds of US citizens apparently well over 120 years old claiming social security (see: Acting Social Security commissioner clarifies claims about people older than 100 getting benefits, The Hill, 19 February). As with all these stories, it's hard to disentangle fake news from fact, but here in the UK we also have a problem with stats (Delphine Strauss and Amy Barrett, How flawed data is leaving the UK in the dark, Financial Times, 7 February 2025). The UK problem is predominantly due to the fact that most of us can't be bothered to fill in surveys or take cold calls. So the data is fragile and if it's fragile for the country it's also a bit rich for TPR to give the rest of us a dressing-down for not having our own pension scheme data in top shape. What we might do is re-frame our imperfect internal data as ‘statistics under development' as the ONS now does.

In the meantime, we should take comfort from one of the winners of last year's Ig Nobel prize. Some years ago, it was awarded to a study that revealed that some mammals can breathe through their anus; last year it went to Sam Justin Newman from University College London. He concluded that most of the claims about people living over 105 are wrong (See: UCL demographer's work debunking ‘Blue Zone' regions of exceptional lifespans wins Ig Nobel prize). He thought that some of the academic papers in Nature and Science about extreme aging in the 2010's seemed improbable and consequently tracked down 80% of the people aged over 100 in the world, and found that almost none had a birth certificate. Of the 500 people in the US, only seven had a certificate. And only 10% had a death certificate (me neither). And in 2010 82% of the people aged over 100 in Japan turned out to be dead. The secret to living to 110 was not to register your death. We probably need a guidance note from TPR to take account of the fact that the best place to reach 105 in England is Tower Hamlets, a place which is also rated as being the worst place to be an old person. UK pension schemes solvency might be improved if they asked all their pensioners over 90 to produce both their birth and death certificates.

DEI, the Dunning-Kruger effect and regulation

Most of us are familiar with Parkinson's law. But there are several other similar nostrums, including for our purposes the Dunning–Kruger effect which is defined as the tendency of people with low ability in a specific area to give overly positive assessments of this ability. This is often seen as a cognitive bias, i.e. as a systematic tendency to engage in erroneous forms of thinking and judging. In the case of the Dunning–Kruger effect, this applies mainly to people with low skill in a specific area trying to evaluate their competence within this area. The systematic error concerns their tendency to greatly overestimate their competence, ie to see themselves as more skilled than they are. We all know how this works in regulation.

There is also a reverse Dunning–Kruger effect which indicates the tendency of highly skilled people to underestimate their abilities relative to the abilities of others. We can see this in the undue respect that skilled actuaries, lawyers in the private sector and others pay to inexperienced regulators.

One of the areas, especially in Financial Conduct Authority and TPR, has been the creation of targets, for example in relation to DEI or the pensions dashboard. But, in the private sector, Alphabet, Accenture, Amtrak and Goldman Sachs are among the private-sector companies abandoning DEI hiring and other diversity-related goals. Here is a chart of mentions of DEI during investor calls (Lex, Financial Times, 12 February 2025):

And it looks as though TPR and FCA are following suit. DEI looks to be as obsolescent as ESG, GDPR, SSP, contracting-out, anti-franking and carbon paper have now become.

By the way...

There's a new Crime and Policing Bill going through the system; it raises the possible fines for certain offences including ASBOs. The Home Office press release notes there needs to be zero tolerance for anti-social behaviour, behaviour which has in the past resulted a fine for an 82-year-old cycling through the centre of Grimsby (1472 people were fined for cycling wrongly in Grimsby) and a fine for a busker for playing outside a Bruce Springsteen concert. 1200 penalties were issued for messy gardens last year.

In practice many, if not most, of the penalties are issued by private enforcement companies who make money on each fine. The fines can now be up to £500 – and there is no appeal. Our friends in the States would be pleased at the contents of the Bill; it contains the power to issue ‘respect orders' (to better enable police and others to tackle persistent antisocial behaviour). Meanwhile, it's probably best not to mention the new Act to TPR, otherwise no chair who has a messy garden will be safe. And trustees based in Grimsby might want to resign in short order. (www.manifestoclub.info).

Robin Ellison is, among many other things, the chairman of the College of Lawmakers, a retired pensions lawyer, a visiting professor in pensions law and economics at Bayes Business School, City, University of London and chair of several pension fundsb