ICAS responds to joint strategy proposals from the FCA and TPR
The ICAS Pensions Panel sets out its views on proposals from the Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) on their first joint strategy: Regulating the pensions and retirement income sector.
The proposed strategy, due to be finalised in October this year, illustrates clearly the pensions and retirement income sector’s complex regulatory landscape.
The remits of the FCA and TPR intersect around the challenge of dealing with pension liberation schemes.
The FCA and TPR have identified the following areas for joint action:
- Getting saving off to a good start: access to pensions.
- Making sure pensions are well run and funded; effective governance and securing funding.
- Making sure pensions offer good value for money.
- Supporting good choices and outcomes for consumers and members.
The remits of the FCA and TPR intersect around the challenge of dealing with pension liberation schemes:
- From TPR’s perspective, ICAS believes it would be helpful if the power of pension trustees to block DB to DC transfers was strengthened through legislation.
- From an FCA perspective, the ICAS view is that more attention needs to be given to the regulation of the investment vehicles receiving ‘liberated’ funds.
In recent years, complexity has increased with TPR acquiring responsibility for the implementation of pensions auto-enrolment, including enforcement powers over employers. TPR will also be responsible for the authorisation of defined contribution (DC) master trusts when the new regulatory regime commences in October.
While welcoming a joint approach, ICAS believes that the best way for the FCA and TPR to be effective is to retain their distinctive roles which require different regulatory approaches:
- Occupational trust-based pension schemes and auto-enrolment compliance should remain TPR’s focus.
- The FCA’s role is to regulate financial products, product providers and advisers. Its role as the regulator of product providers means that there are aspects of master trust regulation which would perhaps have sat better with the FCA.
Further powers are expected to come to TPR as the UK Government takes steps to implement the proposals set out in its White Paper Protecting defined benefit (DB) schemes. New powers are expected to include, for example, the power to fine those who deliberately put their pension scheme at risk. ICAS broadly supports the extension of TPR’s powers and awaits publication of further details.
TPR’s long-standing objectives to protect people’s workplace savings and to reduce the risk of pension schemes ending up in the Pension Protection Fund (PPF) are at odds with its more recent objective, acquired in 2014, to make sure employers balance the needs of their DB pension scheme with growing their business.
At the time, ICAS did not support the addition of this objective on the basis that existing regulatory arrangements were working and the obvious tension with TPR’s existing statutory objectives.
The regulators must work closely together to supervise DC master trusts.
ICAS highlights the following additional strategic considerations for both regulators, and in some cases for government:
- Building public confidence more broadly in the pensions and retirement income sector is a role for both regulators and is important if savers are going to be encouraged to seek advice or guidance.
- While financial education does not fall within the remit of the FCA and TPR, improvements in financial education could support the proposed joint strategy. Therefore, engaging with government at all levels may be necessary to drive this point home.
- Future increases in longevity would raise the expectation of even longer working lives and time in retirement, meaning that creating an environment where people do save adequately for retirement must be at the centre of government policy and at the heart of the work of the regulators.
- The opportunity to build a long-term relationship with a trusted financial adviser could be incredibly valuable for savers. However, from an individual perspective, it will be those with larger pots who seek regulated independent financial advice. For those with smaller pots, employer-funded advice is likely to be the way forward. Anything the regulators could do to develop this market would be welcome: TPR has experience of engaging with employers and the FCA has experience of engaging with providers and advisers but a fresh approach may now be needed to those relationships.
- The regulators must work closely together to supervise DC master trusts. TPR is to be responsible for the authorisation, as well as supervision of master trusts, while the FCA regulates the entities which provide master trusts. DC master trusts will therefore need clarity from both regulators as to how master trust regulation will work in practice.
- There is more scope for intelligence sharing between TPR and the FCA, with master trust regulation being an area where this will be essential.