Charlotte Clarke -FCA
Pension Oldie has read Tom McPhail on Regulation;
A pensions commission has been tasked with reviewing the adequacy of our pensions but bizarrely the terms of reference say nothing about the way the pension system is regulated.
Pension Oldie’s response is clear
TPR and Defined Benefit Schemes
Well done Tom for bringing this to a wider attention.
The cost of regulation topic was picked up by Pensions UK in a trustee focus group at their recent conference and I believe they are now considering an evidence gathering survey on the costs of regulation met by pension scheme members and sponsors.
The TPR was set up to protect the PPF. Now after 20 years that objective has fallen away with arguably the present surpluses in the PFF viewed as a result of over enthusiastic regulation. The remaining and much diminished universe of DB pension schemes falls into two categories.
The larger schemes and those open to accrual as well as those who have or are preparing for buy-in / buy-out, for whom any regulatory intervention may be counter-productive (consider the USS a few years ago and the DB Funding Code at present).
The second category, and that which TPR particularly uses to justify its existence, is the smaller closed scheme which the employer wishes to “run-out” at minimum cost. These schemes have been in existence in this state for now over 20 years and it is doubtful any active regulatory intervention will change behaviour.
The route for members who consider they are not receiving the benefits to which they are entitled is via the Pensions Ombudsman (now being confirmed as a Court by the Pensions Schemes Bill) with employer failure still being dealt with by the PPF at minimal cost.
TPR and Defined Contribution schemes
I am not sure why TPR has any role in DC. As noted above payment of correct contributions on an individual basis starts with the Pensions Ombudsman. Why should there be a different regulatory framework when those contributions are paid into a mastertrust as opposed to a fully commercial provider? Arguably, it should be the commercial providers, with or without trustee intervention however toothless that is, that should be subjected to the more rigorous intervention to protect savers.
Beyond these areas, what is the benefit of TPR extending its risk dominated regulatory approach to investment consultants and administration providers? Is the resulting increase in bureaucracy likely to improve outcomes for Members or reduce costs?
That leaves the role of trustees. When I first became involved with trustee boards in the 1980s the mantra was that trustees were there to challenge their advisors and not to let them run the scheme, We had mandatory member nominated representatives and the expectation was that most trustees would bring skills outside of pensions to the role. Do we gain from Trustee Boards being encouraged by the Regulator to be dominated by “pension professionals”, especially those whose training, instincts, and outlook condition them to think purely in terms of risk, and reinforced by a Regulator whose role has been defined in terms of risk.
I agree with Robin Ellison that the time has come for a rethink!
Robin Ellison’s are well known to readers on this blog and readers in his regular column in Professional Pensions. I will assent, we do need clarity on why we have a pension regulator for DC schemes, the FCA has the experience and much to teach TPR. Targeted Support is likely the most important regulatory development on the horizon, it will be in place by next Thursday and comes from the FCA.
We need regulation, I know which type I prefer.
The FCA’s Nike Trost