A confusing regulatory structure means the Pensions Regulator is not measuring performance in a way that can demonstrates it is achieving its statutory goal of protecting member outcomes says the National Audit Office.
In a report published today the NAO says TPR’s processes focus too much on processes and systems and not enough on actual outcomes, and focus mainly on trust-based schemes and not contract-based ones.
The public auditing body also voiced its concern that differences in outcomes of pension income of 17 per cent because of higher charges, and also criticised wide variations in annuitisation outcomes.
The report found many positive aspects to TPR’s performance, and was critical of the fact that there is no single public body leading on the regulation of defined contribution schemes and ultimately accountable for the delivery of regulatory objectives.
It points out that while the DWP oversees the work of TPR, and the Treasury is responsible for setting the overall legislative framework within which the FSA operates, and all four public bodies participate in a senior level group which discusses DC scheme issues, none of these bodies leads on, or is accountable for, the regulatory system as whole. There is also no overarching system for measuring the performance of both TPR and the FSA in reducing risks to members, and the senior level group has not established a joint risk register.
Amyas Morse, head of the National Audit Office, says: “It is not possible to judge how well The Pensions Regulator is doing to protect the benefits of members of work-based pension schemes. This is all the more significant as the trend towards membership of such schemes accelerates. While the Regulator’s overall approach is sound, its performance measurement system is not strong enough.
“Responsibilities for regulating pensions are shared, and the agencies involved need to develop a concerted approach to assess and, where necessary, act upon risks. The DWP and the Treasury should therefore work with The Pensions Regulator and the Financial Services Authority to develop a more integrated approach to collecting evidence, assessing risks to members, and measuring the effectiveness of pension regulation.”
Bill Galvin, the regulator’s chief executive, says: “Standards in DC schemes are hugely important to us – our principles and features for workplace DC schemes are helping to set the agenda for good automatic enrolment schemes. We believe that focusing on these principles and features will make good outcomes for members more likely over the long-term.
“We accept the NAO’s challenge to develop performance measures linked more directly to actual economic outcomes for members, despite the significant time scales and range of factors involved. We have set ourselves that goal in our current corporate plan.”
Darren Philp, director of policy at the National Association of Pension Funds, says: “The recommendations highlight the confusion created by our current regulatory structure, with no one department or regulator responsible for DC pensions. This creates confusion for practitioners and, most importantly, pension scheme members.
“We need to slim down the regulatory framework and have a single regulator for all workplace pensions. In our view the Pensions Regulator should be responsible for all DC pensions, whether trust-based or contract-based. Prudential regulation for insurance companies and pension providers would remain with the FSA.”
– The Pensions Regulator should develop new approaches to specifically address those segments of the market it finds more difficult to reach.
– The Pensions Regulator should in due course conduct an independent, comprehensive review of capabilities to examine what skills it may need to meet its objectives.
– The Pensions Regulator should strengthen its framework for measuring performance.
– The Department and the Treasury should work with The Pensions Regulator and the Financial Services Authority to establish overarching objectives for the regulation of defined contribution pensions.
– The Department and the Treasury should work with The Pensions Regulator and the Financial Services Authority to develop a more integrated, evidence-based framework for assessing risks to member outcomes.
– The Pensions Regulator, the Department, the Treasury and the Financial Services Authority should develop an integrated framework for measuring performance against objectives across the whole regulatory system