Examination of Witnesses (Questions 113-119)
MR CLIVE
BRIAULT AND
MR DAN
WATERS
3 MAY 2006
Q113 Chairman: Good morning and welcome
to this evidence session on the National Pension Savings Scheme.
Could you identify yourself and your colleague please?
Mr Briault: Yes, good morning.
My name is Clive Briault and I am the Managing Director, Retail
Markets, at the Financial Services Authority and my colleague
is Dan Waters who is Director of Retail Policy also at the Financial
Services Authority.
Q114 Chairman: You are both welcome.
I presume it is the FSA's objective to ensure that the level of
regulation is kept to a minimum. Given that situation, what in
the White Paper would give you comfort from a regulatory viewpoint?
Mr Briault: Our objective is to
ensure that regulation is proportionate rather than necessarily
always kept to a minimum, kept to a minimum to achieve the purpose
for which it is required. I think, against that background, what
we would focus on when we see the White Paper is to think about
regulation under a number of headings. The first would be what
is required in terms of the information to be given to employees
regarding the scheme in terms of the choices they face. One choice,
as recommended by Lord Turner, for example, would be under auto-enrolment,
that people would have a choice as to whether they opt out of
the scheme or not and, depending on the design of the scheme,
there may be further choices to consumers, for example, in terms
of the particular fund in which they choose for their pension
to be invested, and that is a choice which they may or may not
have. They may have to choose there, for example, whether to go
into a default fund or to choose a different fund, they may or
may not have a choice across a wide range of funds, and that is
yet to be determined, but certainly information to employees would
be the first aspect that we would look at. The second aspect likely
to fall more in the area of a pensions regulator, and perhaps
we could come back to the differences between a pensions regulator
and the FSA in a moment if we need to, is clearly that there will
need to be here a minimum level of regulation to ensure that employers
do indeed contribute the funds into the scheme on behalf of the
individual, so essentially making sure that all of those administrative
arrangements, payments into the scheme and indeed payments out
of the scheme are properly made with proper records kept and annual
statements or whatever sent to consumers of the pension. The third
main area would be in terms of whoever runs the fund or funds
in which people invest, that they are managed properly in terms
of minimum standards of corporate governance, proper management,
proper systems and controls in those funds and indeed a minimum
level of capital. Therefore, if, for example, it is run by an
investment fund, a managed fund of the sort that we currently
regulate, we have a requirement there that those funds are required
to hold 13 weeks of annual expenditure, so a quarter of the annual
expenditure as a minimum capital requirement, and also a requirement,
which is also important, that they separate out the client money
in the fund. The final aspect which we would need to look at,
and I think this is the bit which really depends most on the particular
design of the scheme which is chosen, would be a package of issues
around whether or not we would need to introduce any regulation
of advice. As we point out in the memorandum which we sent to
the Committee, we think that the relevant factors there to take
account of would be the contributions made by employers and possibly
by the taxpayer to supplement the contributions made by individual
employees, whether or not there is means-testing of the state
pension and whether or not consumers are faced with a wide variety
of choices.
Q115 Chairman: We will come on to
that later on in the questions.
Mr Briault: I think all of those
are important in determining what would be a proportionate approach
to regulation around whether or not we would need to regulate
advice, and I think what is absolutely crucial there is that one
can imagine some schemes which were designed where, frankly, there
would be no need for advice regulation, and other types of scheme
with other features where you would need to introduce some form
of proportionate regulation of advice, but, as I say, that would
depend crucially on the design of the scheme.
Q116 Chairman: If the schemes require
conduct of business regulation by the FSA, do you think then,
in those circumstances, that the Government would have failed
its own test regarding affordability and simplicity?
Mr Briault: Clearly there is a
trade-off between the two. I think, as I say, if the scheme is
as simple as possible, then it is likely that there is no need
for regulation of advice and in particular if, in addition to
that, the impact of employer contributions, possibly also taxpayer
contributions and, on the other hand, reform of means-tested pensions
may mean that the scheme is pretty much of near-universal suitability,
therefore, there is no need for advice, so I think it does depend
crucially on whether there is a need for advice as part of the
scheme and, if there is, then it is a question of how best that
is regulated.
Q117 Chairman: On the sales and conduct
of business regulation, do you think the model proposed by the
ABI with a number of competing providers would be possible without
a regulated sales process?
Mr Briault: I think there may
well then need to be some conduct of business regulation because,
if you are giving consumers, which is a possible interpretation
of the ABI model, a choice that they need to make among a range
of product providers, then questions do arise about the regulation,
at the very least, of the information made available to consumers—
Q118 Chairman: So the answer is no?
Mr Briault:— from which
to make that choice. Well, the answer is yes, that would require
some degree of conduct of business regulation. Again it would
depend on the precise design.
Q119 Chairman: But I asked if it
was possible without regulation.
Mr Briault: Sorry, not possible,
no.
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