Are the regulators fit for purpose?

How different this landscape is from those gentle days before April 6 1997, when there was comparatively little pensions law and no dedicated Pensions Regulator.

In light of these changes, the question is whether the current pensions regulatory regime is fit for purpose.

Current regulatory regime

Responsibility for regulating pensions is divided between the regulator and the Financial Conduct Authority. Both are creatures of statute: their responsibilities and powers are set out in legislation.

As more and more people become members of DC schemes because of auto-enrolment, it is crucial there is joined-up working between the two main pensions regulators

TPR regulates private sector trust-based pension schemes as well as having governance and administration oversight for public sector schemes.  

It replaced the Occupational Pensions Regulatory Authority from April 6 2005. The regulator takes a proactive and risk-focused approach to meeting its statutory objectives. Its aim is to concentrate its resources on schemes where the security of members’ benefits is most at risk.

The FCA regulates companies authorised under the Financial Services and Markets Act 2000 that conduct in retail and wholesale financial markets.

In pension terms, the FCA regulates contract-based pension schemes, as well as independent financial advisers and certain aspects of the pensions flexibilities regime. Its objective is to ensure that the financial services market functions well.

Issues with the current regulatory regime

There are a number of issues with the current regulatory regime. Some of these issues relate to the fact that there is more than one regulator for defined contribution schemes, others relate to the ever-increasing complexity of the pensions landscape.

The DC market is regulated by two masters with slightly different regulatory focuses. The regulator focuses on trust-based schemes; the FCA focuses on ensuring that customers in contract-based schemes are treated fairly.

As more and more people become members of DC schemes because of auto-enrolment, it is crucial there is joined-up working between the two main pensions regulators.

The April 2013 memorandum of understanding between the regulator's and the FCA sets out the framework for their regulatory co-operation, including how they will exchange information and work together in areas of common interest.

It also states how they will deal with investigation and enforcement cases where they have complementary powers.

There may still be two regulatory regimes, but any action to create a more joined-up structure can only be welcome, especially in the DC pensions world.

Pensions policy appears increasingly to be driven by the Treasury rather than the Department for Work and Pensions – indeed, the new pensions minister is not a minister, but a parliamentary under-secretary.

We will have to wait and see whether the Treasury will heed the calls for a single pensions regulator or even a super financial services and pensions regulator.

Pensions complexity

Pensions law is complex. However, circumstances can arise when a swift regulatory reaction may be necessary but is not always possible. The recent BHS situation is a good example of this.  

Sir Philip Green sold BHS in March 2015 for £1. Just over a year later BHS is no more. A parliamentary committee has been examining what actually happened and what the regulator knew in the run-up to the original 2015 sale and beyond.

The regulator may be designed to be proactive, but it can only take action where it has been approached or somehow finds out that action is required. It does not have the manpower to police all schemes all of the time.

In addition, even where it does investigate, sheer complexity may mean that final regulatory action may not be taken for several years.

Ruth Bamforth is an associate at law firm Walker Morris