Time to beef up UK supervision
With assets of in excess of £1.8trn (€2trn), DB occupational pensions easily represent the single largest stock of financial savings in the UK, according to statistics compiled by the UK Investment Association, with fund investments at £1.2trn and cash savings at £1.5trn.
They also represent over 80% of all occupational pensions assets, with trust and contract DC pension assets at just £410bn.
The regulation and supervision of this stock of assets is therefore of material importance to millions of people. Yet the public authority put in place to protect DB pensions has been described as “feeble” by the Parliamentary enquiry into the recent collapse of the services and construction company Carillion.
The Pensions Regulator is a product of the disjointed history of occupational pensions regulation in the UK. Its predecessor, the Occupational Pensions Regulatory Authority (OPRA), was created in reaction to the collapse of the Maxwell publishing group in the 1990s and the scandal of the misappropriation of Mirror Group pension fund assets.
So essentially for historical reasons, the supervision of £1.8trn of pension savings is divided between the two main UK financial services regulatory bodies – the Financial Conduct Authority and the Prudential Regulation Authority (PRA).
Both these entities came about following the financial crisis of 2008, but the Pensions Regulator, which itself was just a few years old at that time, was left out of this overhaul.
There are strong reasons why UK policy makers should focus on DB occupational pensions regulation – and not just because of the sheer size of DB pension assets. Whether or not pension consolidator vehicles like Pension SuperFund or Clara individually succeed, UK occupational pensions supervision should prepare for a future in which larger entities play a greater role.
Any perception that the supervision of these entities is inadequate could be highly damaging to public confidence, despite the positive role they can play in promoting efficiencies and lowering costs if they do their job well.
“The Pensions Regulator is a product of the disjointed history of occupational pensions regulation in the UK”
There is no reason why a well-resourced independent regulator with the right mandate and sufficient resources cannot be effective both in supervision and in maintaining public trust in occupational pensions.
But given public, high-profile criticism of the UK’s current occupational pensions regulatory set-up, now is the time to fold the Pension Regulator into the PRA, following a comprehensive consultation about its future mandate and role in relation to members, employers, trustees, the PPF and, not least, new pension consolidation entities.
Brexit is a huge distraction for UK politics – ironically at a time when the EU is seriously considering the future role of its own financial supervisory authorities. A decade on from the Lehman crisis, proper thought needs to be given to making UK occupational pensions supervision fit for the future.
Liam Kennedy, Editor