UK regulators disclose combined approach to DC pensions regulation
UK regulators have moved to tackle concerns of disjointed regulation for defined contribution (DC) pension schemes by publishing a guide highlighting each body’s focus and approach.
The DC market is currently split between trust-based schemes, regulated by The Pensions Regulator (TPR), and insurance-based schemes, or contract schemes, which are regulated by the Financial Conduct Authority (FCA).
This is due to the legacy requirement for the FCA to monitor and regulate all entities that provide financial products, which includes contract DC schemes.
A dual approach has led to concerns within the industry of DC savers being treated in a different manner, thus affecting overall member outcomes.
However, to harmonise the regulatory approach for the FCA’s estimated 2.7m savers in contract schemes, and TPR’s 0.8m in trust schemes, the bodies have published a guide for trustees, advisers and DC providers.
The guide is said to detail areas of common ground between the two bodies, as well as explain how both will ensure members are unaffected by the different regimes.
Since the FCA’s regulatory approach includes a “multitude of financial services”, it was not deemed feasible to have identical approaches.
However, both have identical expectations for scheme quality and member outcomes.
“The regulators will take the lead on different kinds of activity, consistent with their respective regulatory remit, strategy and powers,” the report said.
“TPR is more likely to take the lead where there are problems with an individual scheme, and the FCA is more likely to take the lead where the issue is caused by the pension provider.”
“If there are potential implications for both regulators, they will agree who should take the lead and may undertake a joint investigation if appropriate.”
Disjointed regulation between the two bodies has often been highlighted as a concern by think tanks, industry experts and backbench MPs in charge of scrutinising government pensions policy.
However, despite this, pensions minister Steve Webb reiterated late last year that he had no plans for combining both bodies, or reforming the current system.
Other arms of the government, including the Treasury, supported this view, as well as the former chairman at TPR, Michael O’Higgins, who said any merger would be “unwise”.
On the launch of the guide, Andrew Warwick-Thompson, executive director for DC at TPR, said he saw no reason why the different types of schemes should ever deliver different outcomes.
“However,” he added, “joined-up regulation is essential to build equal confidence in both types of scheme, and this guide clarifies the various ways in which we and the FCA work together to improve the quality of all DC schemes.”
Director of policy at the FCA, Christopher Woolard, said: “As the new landscape takes shape, it is more important than ever that there be a consistent approach between the two regulators. The guide sets out how each of us will work to achieve that.”