Single regulatory system needed to avoid 'conflicts of interest'
UK – A UK academic has insisted on the need for a single regulatory framework for pensions, one whereby the regulator charged with overseeing matters of governance is focused solely on member outcomes.
Speaking at an event on governance hosted by union umbrella group TUC, Debbie Harrison of the Cass Business School's Pensions Institute was also critical of the lack of clarity on how the country's two new regulators – the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) – would interact.
She said she fully supported the introduction of auto-enrolment and that increasing contributions was the best way to ensure adequate outcomes.
"But if we are having conversations now about lack of joined-up regulation and what does good governance look like, then it's a big ask to expect people to start paying in more in something we haven't really got full confidence in," she said.
"We need a single regulatory system – however that is delivered. I can see the problems of merging the regulators, but that doesn't mean the problem's going to go away.
"We need a single system, and certainly one whereby whoever is responsible for governance is only focusing on member outcomes – there are no conflicts of interest."
Her comments come after the work and pensions select committee backed the creation of a single body charged with overseeing pensions, rather than responsibility being divided between the Pensions Regulator (TPR) on trust-based and the other existing regulators for contract-based arrangements.
Harrison said she was still awaiting an updated version of the memorandum of understanding, last updated in 2007, which outlined how TPR and FSA worked together.
"Unless it's happened today," she said, "we are still waiting for it. We now have two new regulators – the FCA and the PRA – and we still haven't got a clear idea of how they are going to work together. That's a bit past the time when it should have been ready."
Harrison concluded that while the new arrangement was "very sensible", unless clarity was offered soon, there would be concerns over how best to treat members fairly and how this fits with prudential concerns of the market.
"One of the concerns I have is that, without any really clear steer on a single regulatory scheme – that it tells what exactly good governance is and looks like – there is a danger prudential concerns override conduct concerns," she said.
Her comments came after a speech by National Association of Pension Funds chairman Mark Hyde Harrison, who questioned whether the current regulatory environment was fit for purpose.
He said some of the regulators had not yet "caught up" with the changes triggered by last year's introduction of auto-enrolment.
"Auto-enrolment means people don't pick, they don't chose, they don't select and they don't purchase their pension – but they expect it to work for them," he said.
Hyde Harrison said the FSA effectively "squeezed" auto-enrolment into the existing regulatory framework that argued protection arrived at the point of sale, when auto-enrolment did not have one, as such.
He said that, because an estimated £11bn (€12.9bn) was set to come into auto-enrolment funds each year in future, the arrangement was possibly inadequate.
Pointing to TPR's plans to implement its principles for good defined contribution governance with the FCA, he said it was unclear how that would be achieved.
"We do have to say, they are two very different regulators," he said. "TPR is a standard-raising regulator. The FCA is a standard-setting, rule-based regulator. How they are actually going to interact is very unclear to us in the industry."