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IPE special report May 2018

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DB supervision squeezed as UK regulator budgets to manage auto-enrolment

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The continued roll out of auto-enrolment is to dominate The Pensions Regulator’s (TPR) actions next year, with a heavy focus on ensuring employer compliance, and legal action.

Publishing an annual update of its business plan, the UK regulator, which is part tax-payer funded, said auto-enrolment would shift to account for majority of budget.

The body spent £56.8m (€70m) on regulating defined benefit (DB), defined contribution (DC) and auto-enrolment in 2013-14, with the latter accounting for 37%.

In its forecast for the current financial year, which began in April, it said auto-enrolment compliance expenditure would increase by 90% to £40.4m, accounting for 52% of the total budget.

The regulator’s budget for DB regulation has been squeezed, falling by 10% to £20.9m, and seeing its share of TPR’s budget fall from 41% to 27%.

Its budget for DC rose by a third to £16.5m, but it’s share or total budget remains similar as the body secured extra funding from government.

Auto-enrolment compliance is funded directly by the tax payer, while DB and DC regulation by a levy on pension schemes or their sponsors.

Despite this, the squeeze on DB comes as the regulator finalises its new Code of Practice, to be published in June, which includes how it will incorporate a new objective laid down by the government.

TPR’s current objectives include protecting member benefits in occupational pension schemes, reducing the risk to the Pension Protection Fund (PPF), and now to minimise any adverse impact on the sustainable growth of an employer.

It will also be monitoring the industry and working with DB schemes as the April 2016 deadline for the end of contracting out approaches, which is likely to lead to more scheme closures.

In 2014-15, the regulator also plans to process casework for 1,800 DB recovery plans, a slight increase from the year before, 62,000 scheme returns and 71,740 levy collections.

However, it is auto-enrolment that will see the regulator’s main increase in workload, and an extra boost of 47 full-time equivalent roles.

Casework for auto-enrolment staging and contacting employers will increase substantially, with total number of cases for education, enablement and enforcement rising to over one million from 200,000.

The regulator said its focus remains on being ‘risk-based’ and not addressing every issue, but to select cases and mitigate risks.

It also set out its corporate plan for the next three years, including emphasis on how it will enact its objectives.

However, speaking to IPE about how the regulator would manage the end of contracting out and its new objective, interim chief executive Stephen Soper said while its corporate plan was detailed, it would fall short in some areas.

“Some of the things just don’t square up,” he said.

He said the regulator was trying to be more proactive than reactive to the market, and if it simply focused on changes to regulation, it would not manage to fulfil all of its objectives.

In a separate statement, he added: “To help us achieve our aims, we will be focusing on overarching corporate priorities, rather than rigidly adhering to a silo-based approach with our individual lines of business.

“It is crucial that we approach challenges with organisational flexibility if we are to regulate effectively in today’s ever-evolving pensions landscape.”

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