“The National Audit Office has today published its report into “Regulating defined contribution pension schemes”. The report looks at the effectiveness of the current defined contribution (DC) regulatory system. This includes consideration of how well benefits are being protected and also whether the Pensions Regulator is providing good value for money. It’s a good report and reaches sensible conclusions. Its central issue is not however new, earth shattering, or difficult to remedy. That is provided the Government is united in its actions.
“One of the main problems faced by the Regulator in regulating defined contribution pension schemes is that it is doing so with one hand tied behind its back. The Regulator shares responsibility for regulating some defined contribution schemes –personal work-based schemes- with the Financial Services Authority (FSA). Things are not going to get any better with the forthcoming split of the FSA into the Financial Conduct Authority and the Prudential Regulation Authority. Now the Regulator and the FSA would have some hope of joined up thinking if they reported in to the same masters. The problem is they don’t. The Regulator reports to the Department of Work and Pensions (DWP), while the FSA reports to the Treasury. While all four bodies have input into the regulation of defined contribution pensions, none of them leads on, or are accountable for, the regulatory system as a whole. Those of us in the pensions industry have never been naive enough to believe the DWP and the Treasury have the same objectives, or are always pulling in the same direction, let alone working together in the best interests of members of pension schemes.
“The National Audit Office concludes that the Regulator’s risk based approach is sound, and that it is meeting its statutory objective of promoting and improving the understanding of, and good administration of, pension schemes. The jury is however still out on whether it is good value for money with regard to its wider strategic objective of protecting member benefits.
“The National Audit Office highlights the confusion caused by having more than one regulator and recommends the Regulator and the FSA should work more closely together, which in turn involves the DWP and Treasury doing the same. However, this is not the first time such recommendations have been made, we have seen this routine before. Paul Thornton’s Institutional Review five years ago, proposed that co-ordination between the Regulator and the FSA over the regulation of defined contribution schemes should be maximised, so as to increase clarity for the regulated community. Will the National Audit Office Report, which incidentally we very much welcome, get any further than Paul Thornton’s recommendations did, I doubt it.
“The plea, to which we add our voice, is let the FSA generally regulate insurance companies and the Regulator regulate pension providers whether trust or contract based. There needs to be one regulator and one regulatory framework for pensions. Give the Pensions Regulator the chance and power it needs to protect pension scheme members benefits and I am sure it will take it.”
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