UK – Pension regulation in the UK should transition "from nudging to shoving" in an effort to guarantee sizable pension savings, the parliamentary select committee for work and pensions has been told.
Giving evidence on governance and best practice in workplace pensions, Michael Johnson of the Centre for Policy Studies spoke in favour of a more proactive regulator, noting that if the country's workers failed to amass sufficient pension savings, the cost would be borne by the taxpayer.
"That legitimises a much more assertive role for the regulator – and I'd rather not use the word 'regulator' in the context I'm thinking about it – so that the regulator can enforce tough standards for governance," he told the committee.
Johnson once again argued for consolidation within the local government pension sector and indicated that the matter of scale was important across the industry – arguing that scale of pension pots was a matter the regulator "should be thinking about".
"How do I maximise the scale of someone's pension pots by putting in governance – you can call them guidelines, you can call them something a bit more assertive," he asked.
"You can move away from nudging to shoving and demanding, for example, that pension schemes scale up in the way that is happening in Holland and has happened in Australia."
He insisted that the regulator should be considering such matters through the eyes of the consumer.
Also addressing the committee, David Pitt-Watson, currently working with the Royal Society for the encouragement of Arts, Manufactures and Commerce on a project examining pension scheme charges, called individual savings arrangements such as defined contribution (DC) "costly and inefficient" and highlighted the benefits of a more collectivised approach, with risk sharing spread across all members.
He cited the example of the Dutch and Danish pension systems, where the risk of life expectancy and returns was shared.
"Now, collective pensions are a little bit difficult to set up, you need to think about the governance of them and various other things, but all the studies we have looked at all conclude that collective pensions give better results for less risk," he said.
Pitt-Watson said the improved result in such collective arrangements was "substantial", and that it could in some cases double returns.
But Johnson added later that providers within the industry "absolutely [did] not want" collectivisation or scaling up, as it was not in the their interest.
Pitt Watson, meanwhile, highlighted the problem posed by having two regulators for pensions in the UK – a situation recently examined by the National Audit Office that led to the National Association of Pension Funds to argue in favour the Pensions Regulator acting for all DC schemes, rather than responsibility being shared between it and the FSA.
He said that both bodies' powers were "too often ex post rather than ex ante".
He added: "Rather than setting up the structure so that it delivers [the best pension outcome], it waits for something to go wrong and then shuts the barn door."
The former chair of Hermes Focus Asset Management also argued that the National Employment Savings Trust (NEST) should be able to receive those workers and employers unhappy with the level of fees charged by some within the pension industry.
He said the fund – launched by the government alongside its auto-enrolment reform – was currently "hobbled" by a transfer ban and contribution cap.
He argued that for NEST to "thrive", the restrictions should be removed, a change first backed by the select committee in March and now the subject of a government consultation.