8 Regulatory framework
The case
for a revised regulatory approach
118. We recommended in our 2013 Report that the Government
reassess whether the existing pensions regulatory framework was
working effectively. In simple terms, responsibility is currently
divided between The Pensions Regulator (TPR) which oversees trust-based
pension schemes, and the Financial Conduct Authority (FCA—previously
the Financial Services Authority (FSA)) which regulates contract-based
schemes (although the FCA is also responsible for some aspects
of provider activities in trust-based schemes).[201]
119. In 2013, we questioned the level of resources
which the FSA (now FCA) was able to devote to pensions regulation,
given the other demands arising from wider financial services
and banking regulation. We said that we were "not convinced
that the FCA is the appropriate body to regulate contract-based
pension schemes." We asked the Government to consider whether
a single body with sole responsibility for regulating workplace
pensions should be established.[202]
120. The FCA and TPR view in the current inquiry
was that they were both "a creature of the statute, as opposed
to something that creates it", so they would work with whatever
regulatory structure the Government put in place. However, they
argued that, wherever the lines were drawn in financial services
regulation, there would always be boundaries where pensions meet
investments, taxation and other Treasury responsibilities. Good
relationships and effective coordination between the responsible
bodies were therefore the key to avoiding gaps and providing a
seamless service for users. Stephen Soper of TPR acknowledged
that, if you were starting from scratch you probably would not
set up the system as it currently operated, but starting with
a blank page would not necessary produce a better outcome.[203]
121. In response to our 2013 report, the Government
stated that it did not believe the timing was right to change
the regulatory structure: the FCA had only recently been created
and AE had only recently begun. However, it accepted that work
was necessary to ascertain whether it was possible for the regulators
to be more closely aligned and whether there was a need for further
legislative requirements. [204]
122. It was evident during proceedings on the Pension
Schemes Bill in autumn 2014 that the Government's position had
shifted slightly.[205]
In oral evidence to us in January 2015, the Minister clarified
his position: "mucking about with regulators" in the
middle of the AE process and with the new pension freedoms about
to begin "does not feel like the right thing to do";
however, "my experience of the past 12 months makes me think
it is well worth looking at".[206]
The Minister also raised the question of whether pensions policy
is "too fragmented" within government, being spread
across DWP, the Treasury and the Cabinet Office (which is responsible
for public service pensions). His view was that there was a "strong
case" for bringing this together in one department, which
would also make the job of Pensions Minister "an awful lot
easier".[207]
123. In 2013, we recommended that, if the FCA remained
responsible for contract-based pensions, it should "adopt
a pensions-specific and proactive regulatory strategy and set
up a well-resourced team dedicated solely to regulating contract-based
pension schemes."[208]
In oral evidence to this inquiry, the FCA said that it now had
45 people working solely on pensions and "around 100 staff
from time to time […] deployed on thinking about pensions-related
issues"; and that there was the ability to move resources
to where they were most needed. When asked whether there was sufficient
senior management focus on pensions within the FCA, Christopher
Woolard said "there probably is […] broadly the answer
is yes". [209]
It was also notable that neither of the FCA witnesses had "pensions"
in their job title.
124. In 2013, we expressed concerns about the
FCA's ability to regulate pensions effectively and recommended
that the Government consider establishing a single pensions regulator.
Nothing we have heard in our current inquiry has allayed our concerns
about the FCA's focus and expertise on pensions. The comment from
FCA witnesses, previously cited, that it cannot "stop fools
acting like fools" was particularly worrying and does not
inspire confidence in the FCA's approach to pension savers. We
are pleased that the Minister's position on a single regulator
is changing, particularly as there seems to us to be an even stronger
case for this now, because of the greater potential for saver
detriment under the new flexibilities. We accept that there would
be some costs and disruption to moving to a single regulator and
that difficulties with boundaries may still occur to some extent.
However, we believe these factors are outweighed by clarity for
savers, employers and the pensions industry. A single regulator
would also be better placed to look across the pensions landscape,
from the start of saving to the point at which funds can first
be accessed, and on through the decumulation process as it continues
through retirement.
125. We recommend that the next Government consider
the merits of establishing a single regulator covering the whole
remit of pension saving, drawing on detailed analysis of the current
regulatory framework carried out by the new independent pension
commission which we propose. The Pensions Minister also suggested
that pensions policy is currently too fragmented across government
and believed that there was a strong case for bringing the different
policy responsibilities together in one government department.
We agree that this is a sensible proposal for the next Government
to consider, and believe that it will strengthen the case for
a single regulator even further.
201 Sixth Report of Session 2012-13, Improving governance and best practice in workplace pensions,
HC 768, Chapter 6. See also Q169 Back
202
Sixth Report of Session 2012-13, Improving governance and best practice in workplace pensions,
HC 768-I, Chapter 6 Back
203
Qq148-153 Back
204
First Special Report, Session 2013-14, Improving governance and
best practice in workplace pensions: Government Response to the
Committee's Sixth Report of Session 2012-13, HC 485 Back
205
HC Deb 2 September 2014, cols 202-3 and Pension Schemes Bill Committee,
28 October 2014, col 176 Back
206
Q346 Back
207
Q272 Back
208
Sixth Report, Session 2012-13, Improving governance and best practice in workplace pensions,
HC 768-I, Summary and para 104 Back
209
Qq159-160, 166-168 Back
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