What lessons can the new Independent Football Regulator take from the pensions industry?

In the King’s Speech on 7 November, the Government announced its intention to bring in a Football Governance Bill, establishing a new Independent Football Regulator (IFR). This will cover all clubs in the top five tiers of the English football pyramid (Premier League down to National League), and its main purpose will be “to safeguard the future of football clubs for the benefit of communities and fans”.

Regulators in this country have a chequered history, with several being criticised for being ineffective (including, most recently, Ofwat this summer for the record levels of sewage spills and its perceived lack of a meaningful response). So, how can the Government ensure that the new IFR is set up to be able to meet its objectives?

At LCP, we have plenty of experience working in regulated industries, including in pensions where The Pensions Regulator (TPR) has been in place as the industry regulator for nearly 20 years. While it’s certainly not been plain sailing all the way, generally the pensions industry has fared well under the TPR, particularly with the large majority of members of defined benefit pension schemes receiving close to their full promised benefits, even where the companies sponsoring their scheme have gone under.

As noted in our recent report “Creating a sustainable future for football” (see page 7), there are many similarities between the finances of pension schemes and football clubs – so, what lessons can be taken from this experience for effective football regulation?

Lesson 1. Regular monitoring and proactive engagement is more effective than dealing with problem cases

We’ve learnt that, once a company and its pension scheme are in serious financial trouble, there’s not a lot that a regulator can do to improve things. TPR has been criticised, particularly in the high-profile cases of BHS and Carillion, for not doing more – but once the issues were serious enough to be in the public domain it was realistically too late to make much of a difference.

In contrast, at LCP we get to help advise pension schemes where the sponsoring employer’s and/or the scheme’s finances have flagged up as potential problems with TPR’s early warning system. With our support, active engagement with, and by, TPR is generally able to improve things for such schemes and their members. These kinds of situations form the vast majority of problem cases handled by TPR, and they don’t make the headlines because they are dealt with professionally and effectively, and no-one loses out too much.

TPR’s ongoing monitoring covers the financial position of both the pension scheme and of the sponsoring company – akin in football to monitoring both the football club and its owner’s position. We therefore strongly believe that the IFR needs to be able to monitor on an ongoing basis both the club’s finances and the willingness and financial ability of the owner to continue to support the club. Early intervention is key to successful outcomes, and ongoing checks are the simplest way to ensure that IFR is able to intervene.

TPR monitors over 5,000 defined benefit pension schemes (and a further 27,000 defined contribution arrangements), and so of necessity takes a risk-based approach, focusing where it can have most impact. Whereas IFR will be dealing with only around 120 football clubs – and so should be able to monitor and, where appropriate, engage with every club.

Lesson 2. Carrot works better than stick

Incentivising and rewarding ‘good behaviour’ can be a powerful tool in encouraging organisations to improve the way they operate and reduce risk. In the pensions industry, the operation of the Pension Protection Fund (PPF) levy has incentivised and rewarded employers who improve the financial support to their pension schemes, by reducing the PPF levy they need to pay each year. This has over the past two decades resulted in increased funding levels and additional financial support being put in place for pension schemes, such as parent company guarantees and contingent asset arrangements.

Within football, this could readily be done by linking part of the distribution of broadcasting revenues to how each club performs in various key areas (e.g. financial, governance, fan and community engagement, diversity and inclusion, and environmental sustainability).

The Fair Game group have proposed an approach along these lines, based on a “Fair Game Index”, the first full iteration of which was published in July 2023 – and this could form a broad model for developing such an approach by the IFR.

Lesson 3. A safety net is still needed to protect the vulnerable and unfortunate

Companies fail for all sorts of reasons, and football clubs do too. While football clubs are often rescued by wealthy benefactors, sadly this doesn’t always happen – Bury FC, Macclesfield Town, Chester City, Aldershot, and Maidstone United have all disappeared in recent decades. And while phoenix clubs have often been formed from their ashes, they’ve generally had to start at the bottom of the pyramid – while in the meantime local businesses and communities have suffered great distress both financially and emotionally.

This used to happen in the pensions industry. Prior to the formation of the Pension Protection Fund (PPF) “lifeboat” in 2005, members of pension schemes with a failed employer could lose a large part of the pensions they had built up over many years of employment. Since then, the PPF has taken on responsibility for paying pensions to nearly 300,000 members of pension schemes where the sponsoring employer has gone under (and while the members don’t usually receive their full pensions from the PPF, the reductions are generally relatively small). The PPF is funded by levies on pension schemes, with the best funded and most well supported schemes paying the lowest levies.

Damian Green MP, a member of the DCMS Select Committee, recently suggested a similar approach could be used to establish a rescue fund to support failing football clubs, funded by a levy on football’s broadcasting revenues and administered by the new IFR. The existence of such a fund would do much to help calm the fears of so many fans when their clubs get into severe difficulties (eg Derby County, Reading, Sheffield Wednesday, Southend United etc etc) - even if it only needed to be used in practice very rarely. While this would need careful design (particularly to avoid the “moral hazard” of potentially allowing owners to take more risks knowing that, if everything goes wrong, the club will be saved), it could do much to protect clubs, and their fans, from the worst-case scenario of liquidation and winding up.

Next steps

There’s plenty for legislators and politicians to do over the coming months to ensure the new IFR has the powers and processes to do its key job of safeguarding the future of football clubs for the benefit of communities and fans.

We believe the lessons of the past 20 years of the pensions industry can help make this happen.