Written evidence from Charles Malcolm-Brown, Dixon International Group LDI0070

TPR seems to regard charged assets as ‘iffy’ as many sponsors exaggerate their value. They may. Tarring all schemes with the same brush discriminates against schemes with real and solid assets charged. These could otherwise be used as collateral against which to borrow and invest. I would advocate that Contingent Assets charged are robustly verified and their value offset against the deficit.

The scheme my company sponsors hasn’t touched LDI with a bargepole, never mind leveraged LDI and will resist being forced to do so. The SME Consultation Group are of the same view. Whilst being mainly in equities, we know that the time to start switching into bonds is when the plateau of most payments to members ends – not because of any tidying exercise by policymakers, sooner.

The assumption that bonds are a safe bet seems to have been debunked by recent bond market conflagrations. The BoE even had to intervene. This indicates to me that the insistence on assuming scheme investments are in bonds rather than equities as many are in calculating the fictional deficit, is another fracture in the pension lens. Another distortion of reality. This helps create a ‘distortion multiplier effect’. What follows is a crude illogic:

1. We have a closed DB scheme invested mainly in equities.
2. TPR assumes the investments are in bonds – thereby inflating the so-called deficit by 230%.
3. This bears little relation to what the scheme will actually have to pay out.
4. The haywire in the bond markets caused our so-called ‘deficit’ to more than halve in a year – not much stability there.
5. Why cannot discount rates be measured each triennium by what their value actually is instead of a twisted distortion of the reality?
6. The artificially inflated ‘deficit’ bumps up the PPF Levy (they have halved the rate for small schemes but see the earlier submission).
7. Through quirks in FRS 102, the inflated ‘deficit’ is regarded as a loan at 2.8% - which is removed from the bottom line.

I lose count of how many times the assumptions wired-in distort the realities and often compound one another. Addressing point 5 would have a cascading effect towards realities.

As I understand the position, TPR’s first consultation on LDI caused such a backlash it was (unusually) decided to launch a second consultation. All very well, given the kyboshed first attempt. However, the uncertainty this creates has halted at least one closed-cell consolidation scheme we had planned to join getting off the ground until the end of 2023 if at all. The delay is costing our scheme significant savings.

I would welcome a move towards professional trustees. Of the five or so thousand small schemes, trustees are overwhelmingly lay (and are hectored by tPR to train online viz the ‘toolkit’). Mind-meld. Unrealistic.

February 2023