NAO slams 'insufficient accountability' in regulation of DC pensions
UK - The National Audit Office (NAO) has criticised what it perceives as a lack of accountability in UK defined contribution (DC) regulation when it comes to fees and annuity purchases.
In a report examining the importance of regulating the DC market, the NAO also stresses the need for effective governance arrangements across the industry and says it is currently unable to assess whether the Pensions Regulator has sufficient powers to perform its duties.
It said it was hard to gauge the regulator's impact, as it was impossible to measure how the market would develop in its absence.
It also pointed to the difficulty of defining or assessing the regulator's statutory progress of protecting DC benefits.
Amyas Morse, head of the NAO, said: "It is not possible to judge how well the Pensions Regulator is doing to protect the benefits of members of work-based pension schemes. This is all the more significant as the trend towards membership of such schemes accelerates. While the regulator's overall approach is sound, its performance measurement system is not strong enough."
The report added: "This is because the objective is not clearly measurable, sharing of responsibilities for contract‑based schemes with the Financial Services Authority makes it difficult to separately identify their respective influence, and there are no indicators to measure their overall influence."
It said that while the overall risk-based regulatory approach pursued by TPR was "sound", there was the need for overarching objectives on what regulation should achieve.
"The objective of protecting member benefits rests with the Pensions Regulator, but it is unclear how this aligns with the roles and responsibilities of all bodies across the regulatory system," the report says.
"There is no common framework for assessing risk, collecting evidence and measuring performance across the different bodies involved, and no single body has overarching responsibility for the delivery of regulatory objectives."
The NAO added that this made it impossible to assess whether the regulatory system offered value for money for the taxpayer - and therefore offered insufficient levels of accountability.
The audit office called on the regulator to develop a number of performance measures focusing primarily on outcome, and avoid amending the measures from year to year, so that they would remain comparable.
The regulator's chairman Michael O'Higgins said it would "reflect" on the NAO's findings, while chief executive Bill Galvin stressed that focusing on the challenge posed by auto-enrolment would make good outcomes for members "more likely".
Galvin added: "We accept the NAO's challenge to develop performance measures linked more directly to actual economic outcomes for members, despite the significant time scales and range of factors involved. We have set ourselves that goal in our current corporate plan."
Darren Philp, director of policy at the National Association of Pension Funds, said the report highlighted the "confusion" created by the UK's current regulatory structure.
"We need to slim down the regulatory framework and have a single regulator for all workplace pensions," he said.
"The Pensions Regulator should be responsible for all DC pensions, whether trust-based or contract-based. Prudential regulation for insurance companies and pension providers would remain with the FSA."
But Neil Carberry, head of employment and skills at employer lobby group CBI, was wary of the suggestion that more regulation was the way forward to achieving better outcomes.
"Good scheme governance arrangements, such as transparency, accessible language and appropriate investment options, will help give individuals the information they need.
"However, this should remain a matter for scheme providers, as taking a legislative approach would risk further confusing what is already a complex issue."