Adviser argues for TPR/FCA merger after Consumer Duty ‘failure’

Karen Ritchie wonders if The Pensions Regulator has ‘had its day’

As Regulatory days go, TPR’s is getting to be a relatively long on. 20 years without a re-brand or a change of objectives or a (major) change of location, counts for continuity in regulatory terms. Compare and contrast with the FCA.

Despite the thundering’s of the Ellisonista, TPR is bigger and stronger today than it has ever been and while Robin would have its wings trimmed, the regulators I meet are brim full of confidence right now.

The direction of travel is for more separation between FCA and TPR

One of the reasons for this confidence that the FCA has tactfully and tactically withdrawn their tanks from TPR’s lawn. The concept of “tactical support” leaves trustees free to direct their members to solutions that “members like them” typically buy. TPR is being left to monitor the implementation and management of pension schemes that provide “full service” to members , either through partnerships or through in house “pension” solutions. These could vary from CDC to the signposting to scheme pensions – to Guiided outcomes using AI to help manage drawdown.

The self-confidence that the FCA’s statement that it does not intend to use “simple advice” to help people buy products that turn pots to pensions is based on this being just too hard for advisers, product providers and regulators.

Be careful for what you wish for!

Those who argue for a simplified regulatory regime where the FCA and TPR act as one , had better be careful for what they wish for. Karen Ritchie experienced problems with a pension sharing order and clearly caught a pension scheme on a bad day

The FCA advised Ritchie that it could not do anything as TPR-regulated schemes are not subject to Consumer Duty.

“It seems crazy that a consumer can expect one standard of service in relation to their investments, in line with Consumer Duty, but not on their pensions,” Ritchie argued.

In light of this, Ritchie said that TPR is “woefully underfunded and lacks any real strength when it comes to improving pension scheme service standards”.

I have sympathy with Karen – pension scheme service standards vary from the ropey to acceptable, very few pension schemes operate to the standards of Pension Bee and other non-workplace pensions – where their commercial advantage is that they treat their customers properly. I too have wondered if a single regulator is better

I wrote the linked blog in 2013 and I’ve changed my mind since then. I no longer see TPR as a micro-managing regulator and that’s born out of my experience working with them over the last 10 years.

TPR – much as it would like them – does not have the powers to intervene where poor administration is in place. It will have powers to require scheme data to flow accurately through dashboards and it does have an over-riding objective to protect the member, but right now the Pension Regulator does not have administrative powers to help Karen and her customer out.

It relies on a broader and older duty than the FCA’s 2023 creation.

 In Fiduciary duty we must trust

The Pension Regulator’s version of consumer duty is the trusted and tested principle of “fiduciary duty”. This may sound a little antiquated by comparison with “consumer duty” but it still creates the obligation for trustees to treat members fairly . In the instance of “pension sharing” , a member can escalate to trustees who are required to consider complaints against the scheme and respond. Complaints can be dismissed as “vexatious” but “fiduciary duty” should mean that trustees will take member complaints seriously. And where this is not happening, the offices of the Pension and Financial Ombudsman are Karen and her customer’s  best recourse.

The time to have had a single regulator of pensions has been and gone. Around the time that TPR was coming into being, the FSA as it was, was consolidating various smaller regulators to become the super-regulator it is today. The FCA has been through bad times since- most regulators do- it appears to be in recovery mode right now and with “consumer duty” has at last found a principle base that creates a duty across its vast empire to treat customers fairly.

And of course , firms that do pensions, do a lot of other things to which the consumer duty does apply, so very few advisers or product providers operate entirely under fiduciary duty. Inevitably , consumer duty will impact trustees operating under fiduciary duty because so many trustee investments are regulated by the FCA. These include AVCs and TIPs, pooled funds (including pooled LDI). It includes the investment pathways that targeted support could signpost and will include the endgame for many DB and DC savers who find their retirement income paid for by insurers. All of these, plus the insured workplace pensions written under contract and overseen by IGCs have to answer to the consumer duty.

It falls to the Pension Regulator to oversee some £2trillion of assets that sit behind the pension promises made to us and those we make to ourselves. This is a huge regulatory task and one that we need a specialist regulator to conduct. If Bim Afolami is to be believed, every report TPR sends to him at the Treasury will need to start with a paragraph on what it is doing to generate productivity and growth in the UK.

A better purpose for the Regulator

To me , that is the proper business of the Pension Regulator, to do away with it to harmonise all regulation around the consumer duty would be a nonsense.

We need , as Robin Ellison does, to hold TPR to account. Karen’s comments are welcome too. But we should be clear that the Mindset Change that TPR is being called upon to achieve, must be grounded in trust that fiduciaries do their duty, TPR must not become a micro-manager.