“Clearer, quicker, tougher”: Workplace pension regulation in the 2020s
Through its Future programme, The Pensions Regulator (TPR) reviewed the cultural, structural and procedural aspects of its approach to the regulation of workplace pensions schemes. It now articulates its approach to regulation as “clearer, quicker, tougher”.
While TPR remains committed to working with schemes and employers to secure member benefits, it is now using its existing compliance and enforcement powers more regularly, demonstrating its toughened stance.
TPR’s compliance and enforcement reports have evolved to highlight the breadth of the powers it has exercised in recent months. It now reports quarterly, for example, on the use of its powers to appoint trustees to schemes and to charge individuals with fraud for abuse of position.
In November 2019, a former charity chief executive pleaded guilty to removing more than £250,000 from the charity’s pension scheme. While the former chief awaits sentence, TPR is seeking a confiscation order to recover the funds.
TPR’s evolution as a regulator has led to a more co-ordinated and visible approach to working with the Financial Conduct Authority (FCA). TPR and the FCA launched their first joint strategy not much more than a year ago.
The joint strategy is a welcome response to a changed and changing pensions landscape and a more digital world. A shared focus on good pension outcomes has led to agreement between these two regulators on joint areas of focus and regulatory focus.
Area of focus
A. Access and participation
Pension and retirement products support people to increase their financial provision for later life
B. Funding and investments
Pensions are well funded and invested appropriately
C. Governance and administration
Pensions are well governed, well run and deliver value for money
D. Consumer understanding and decision-making
People access helpful information, guidance and advice that enables them to make well-informed decisions
Delivery of the joint strategy will take time and one of the desired outcomes is for a seamless, secure and trusted consumer journey from pensions saving through to retirement.
Corporate plan 2019–2022
The areas of focus from the joint strategy flow through TPR’s Corporate Plan for 2019–2022, as illustrated by the core risks identified and the six priority areas where TPR is targeting its staff resources.
Core risks that pose a significant threat to the achievement of regulatory outcomes
- A failure or unmanaged exit of a trust-based scheme, providers or regulated entities.
- Excessive numbers of individuals deciding to opt out or stop saving into pensions.
- Defined benefit (DB) schemes not being funded to a level to assure that future member benefits will be paid in full.
- Employers being required to fund pension scheme deficits at the expense of investing in the growth of their business.
- Pension schemes or their members becoming victims of fraud.
- Poor governance or trustee decision-making resulting in poor member outcomes or loss of benefits.
- Poor administration resulting in poor member outcomes or loss of benefits.
- Employers seeking to avoid their responsibilities to the pension scheme.
- Savers suffering a loss due to making poor decisions about their pension funds because they were misinformed or uninformed.
- Employers not complying with their duties to provide pensions to their staff.
TPR’s six priorities for 2019 to 2022
- Extending its regulatory reach with a wider range of proactive and targeted regulatory interventions.
- Providing clarity, promoting and enforcing the high standards of trusteeship, governance and administration it expects.
- Intervening where necessary so that DB schemes are properly funded to meet their liabilities as they fall due.
- Ensuring eligible workers have an opportunity to save into a qualifying workplace pension, through automatic enrolment.
- Enabling workplace pensions schemes to deliver their benefits through significant change, including responding to Brexit.
- Building a regulator capable of meeting the future challenges TPR faces.
Trusteeship and governance
High standards of trusteeship and good governance were a feature of a public consultation by TPR in 2019. The ICAS Pensions Panel responded to the consultation. In our response we emphasised the importance of trustees reporting what they have done, not merely what they know.
Information on what trustees have achieved on behalf of scheme members would be of value to the members and this may be an aspect of governance and accountability that TPR may wish to explore further, including how to gather relevant data from schemes about the achievements of the trustees.
The outcome of the consultation is awaited.
In addition to TPR’s more robust use of its existing powers, new legal powers aimed at further strengthening its ability to deal with wrong-doing are in the pipeline.
The proposed new powers are set out in the Pensions Schemes Bill 2019 which was published shortly before the 12 December General Election was announced. While this Bill has fallen, there is broad support for strengthening TPR across political parties so the delay is unlikely to be indefinite whatever the election outcome.
Details about the proposed new powers are set out below.
Proposed new criminal offences
- Failure to comply with a contribution notice to be punishable by an unlimited fine. Contribution notices issued by TPR require payments to be made into a scheme.
- Avoidance of an employer debt, under section 75 of the Pensions Act 1995, to be punishable by an unlimited fine and/or up to seven years in prison.
- Conduct risking accrued scheme benefits to be punishable by an unlimited fine and/or up to seven years in prison.
Other key changes proposed
- A discretionary power to impose a civil penalty of up to £1m in respect of any of the above.
- A civil penalty of £1m where a person knowingly or recklessly provides TPR (or the trustees in certain circumstances) with false or misleading information.
- Lays the groundwork for enhancements TPR’s notifiable events regime, with some of the details to be left to regulations.
- The extension of TPR’s information gathering powers.