UK PENSION OVERSIGHT FOR WORKPLACE PENSIONS

  • A) Prelude

    The UK Oversight on Workplace Pension Plans is a combined effort of:
    • The Pensions Regulator
    • The Financial Conduct Authority

  • B) The Pensions Regulator (TPR)

    In General

    TPR is a non-departmental public body. It holds the position of the regulator of workplace pension plans in the UK.

    TPR is created under the Pensions Act 2004 and replaced the Occupational Pensions Regulatory Authority (OPRA). It has wider powers and (as one can also see in other countries with such agencies) a new more proactive and risk-based approach to regulation and oversight.

    TPR Objectives

    • To improve confidence in workplace pensions by protecting the benefits of scheme members;
    • To reduce the risk of situations arising that may lead to claims for compensation from the Pension Protection Fund (PPF);
    • To promote good administration of workplace pension schemes;
    • To maximize employer compliance with employer duties and with employment related safeguards.

    TPR Approach

    • TPR employs a risk-based approach, concentrating its resources on schemes which pose the greatest risk to the security of members’ benefits;
    • TPR also promotes high standards of scheme administration and works to ensure that those involved in running pension plans have the required education and skills.

    Critical Perception of TPR in 2018

    After the collapse of the Carillion company in January 2018 with extensive pension liabilities, TPR faced criticism that it should be replaced by a more powerful body. The report of the Parliamentary inquiry into the collapse of Carillion described TPR as "feeble":

    "The Pensions Regulator’s feeble response to the underfunding of Carillion’s pension schemes was a threat to impose a contribution schedule, a power it had never—and has still never—used. The Pensions Regulator failed in all its objectives regarding the Carillion pension scheme. Scheme members will receive reduced pensions. The Pension Protection Fund and its levy payers will pick up their biggest bill ever. The Regulator should not be spared blame for allowing years of underfunding by the company."

    After MPs' criticism of The Pensions Regulator, CEO Lesley Titcomb announced she would step down at the end of her four-year term in February 2019. In June 2018, TPR's non-executive chairman, Mark Boyle, accepted the MPs' criticism but said the organisation's culture had changed. While it had been "business friendly", "insular" and "isolated" from key stakeholders, the regulator had become clearer, quicker and tougher in its dealings with employers and pensions trustees, he said.

    On 25 June 2018, TPR announced it was considering issuing a contribution notice – a legally enforceable demand for a financial contribution to the pension deficit – against former Carillion directors.

    TPR’s Future

    Finally we are highly interested to see if or how TPR will use its existing legal authority in the near future and if it will indeed protect employees as required by law.

    New Website TPR

    http://www.thepensionsregulator.gov.uk/

  • C) The Financial Conduct Authority (FCA)

    In General

    The FCA is a financial regulatory body in the UK. It operates independently of the UK Government and (like in other countries with equal agencies) is financed by charging fees to members of the financial services industry. The FCA is accountable to the Treasury and to Parliament.

    FCA’s Objectives

    • To regulate financial firms providing services to consumers;
    • To maintain the integrity of the financial markets in the UK;
    • To promote effective competition in the interests of consumers.

    FCA’s Approach

    • It focuses on the regulation of conduct by both retail and wholesale financial services firms.

    FCA’s Authority

    • The structure of the FCA’s regulatory authority takes in the Bank of England’s Prudential Regulatory Authority and the Financial Policy Committee;
    • It has the power to regulate conduct related to the marketing of financial products;
    • It is able to specify minimum standards and to place requirements on products;
    • It has the power to investigate organisations and individuals;
    • It is able to ban financial products for up to a year while considering an indefinite ban;
    • The FCA supervices Banks, Mutual Societies and Advisors;
    • The FCA oversight towards Advisors means that they provide to consumers unbiased and unrestricted advice based on comprehensive and fair market analysis;
    • The FCA is responsible for the conduct of around 58,000 businesses which employ 2.2 million people and contribute around £65.6 billion in annual tax revenue to the UK economy.

    Critical Perception of FCA in the past

    The FCA was criticised in 2013 by the Parliamentary Commission for Banking Standards, in their report "Changing Banking for Good". It stated:

    “The Interest Rate Swap Scandal has cost small businesses dear. Many had no concept of the instrument they were being pressured to buy. This applies to embedded swaps as much as

    standalone products. The response by the FSA and FCA has been inadequate. If, as they claim, the regulators do not have the power to deal with these abuses, then it is for the Government and Parliament to ensure that the regulators have the powers they need to enable restitution to be made for this egregious mis-selling.”

    FCA Website

    https://www.fca.org.uk/

  • D) Recent Developments March 2019

    UK PENSIONS: PUSH TO CONSOLIDATE DB SCHEMES IN 'SUPERFUNDS'

    The UK’s Department for Work and Pensions (DWP) started a consultation regarding consolidating defined benefit (DB) pension schemes into so-called ‘superfunds’ to improve security for members. 

    The consultation paper suggests that encouraging a well-managed superfund sector could be a more effective way of managing liabilities. DWP suggested that employers would be incentivised to inject funding into pension schemes to enable them to enter a superfund, so discharging legacy liabilities and allowing companies to focus on their core business. 

    The government said superfund schemes would protect savers through a capital buffer, reducing the risks associated with employer insolvencies, improve the likelihood of members’ benefits being paid in full, and enable access to a wider and potentially more innovative mix of investment opportunities. 

    The consultation builds on proposals published in March this year to strengthen DB protections, handing the Pensions Regulator (TPR) more powers and creating a new criminal offence to punish wilful or reckless behaviour by company directors.

    EIOPA: BE CAREFULL WHEN COMPARING PENSION PRODUCTS

    The European Insurance and Occupational Pensions Authority (EIOPA) published its first Report on Costs and Past Performance of insurance and pension products. 

    It provides data on the costs of insurance-based investment products (IBIPs) across the European Union as well as for certain similar personal pension products (PPPs) and sets out the net performance for the period between 2013 and 2017. 

    The report shows that costs vary depending on the type of product, premium, risk category and jurisdiction. Variations in asset management costs related to different risk categories are a major factor. 

    The report concludes that due to the differences between products, there are significant challenges with comparing performance, for example in view of the values of guarantees, the impact of smoothing mechanisms and terminal bonuses of profit participation products, and the impact of risk and volatility.

    UK PENSIONS: WHY WE NEED OVERSIGHT WITH MANDATE

    BHS went into administration in April 2016 leaving a pension deficit worth £571m, following Sir Phillip Green’s sale of the business to Mr Chappell the previous year. 

    Sir Philip Green ordered to pay £363m into BHS pension scheme, The Pensions Regulator (TPR) says it requested vital information about the sale of the business and its pension scheme from the former bankrupt three times. 

    The ruling follows an appeal from Mr Chappell against his original conviction in January. Judge Christine Henson QC said his appeal was “completely without merit” and that he showed a “complete lack of remorse” for his actions.

    “It was deliberate. It was a blatant refusal to comply with the requests. “His refusal to comply with the Section 72 requests caused significant delay to TPR’s task. It made their work significantly more difficult.” 

    Nicola Parish, director at TPR adds: “His repeated claims that he does not have to give us what we have been seeking have now been rejected by two different courts. “Information notices are a vital investigative tool for us. As this case shows, if you ignore them you are committing a crime and should expect to be prosecuted.”

    Regulators With New Mandates & Initiatives

    In the past there were too often reports of incorrect actions in the Pensions Industry. As beneficiaries in general will have to rely on regulators(!), it's good to see that regulators have several new mandates and new initiatives.

    New Mandates:

    The Pensions Regulator (TPR) has begun to use a number of enforcement powers for the first time in efforts to deal with pension scams, scheme valuations and automatic enrolment.

    New Initiatives:

    The Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) have recently launched a joint regulatory strategy aimed at strengthening their relationship and taking joint action to deliver better outcomes for pension savers and those entering retirement.