Committee compels next government to consolidate pension oversight

The report, released on Tuesday, urged the next government to establish an independent pensions commission to monitor the raft of changes currently ongoing across the pensions industry, and proposed combining the industry’s fragmented regulatory bodies into a single entity.

It recommended bringing pension policy responsibilities under one government department to enhance saver protections in the newly liberalised market.

Ben Franklin, senior research fellow at the UK’s International Longevity Centre, said the case for an independent pensions commission was clear.

“We need to establish a coherent direction of travel for pensions policy in the UK which provides confidence to savers and takes a holistic look at all the different things impacting on the long-term savings environment,” he said.

Franklin said he thought there was an inherent tension between the industry’s legislative agenda and regulatory system.

We are not convinced that the FCA is sufficiently focused on pensions. The comment made in evidence to us that it can’t 'stop fools acting like fools' does not inspire confidence in the FCA’s willingness to be proactive in protecting savers

Dame Anne Begg, WPC

“The legislative agenda is very much about freeing the whole system up, while the regulatory system is about imparting consumer protections on all of these areas,” said Franklin.

However, Kate Smith, regulatory strategy manager at Aegon, said an independent commission has the potential to become "unwieldy", could take too long to make decisions, and "could become hostage to vested interests".

She added: "Any commission would have to be truly independent, yet include experts from across the industry, as well as consumer champions, and probably politicians."

Unified regulation

The WPC also called for the formation of a single regulatory body to better protect savers under the new flexibilities.

In 2013 it asked the government to consider whether a single body with sole responsibility for regulating workplace pensions should be established after fears were raised about the level of resources the Financial Conduct Authority, responsible for contract-based schemes, could devote to pensions.

A regulatory overhaul of this scale would generate significant cost and disruption but the report deems these factors would be “outweighed by clarity for savers, employers and the pensions industry".

Dame Anne Begg MP, chair of the WPC, said in a release accompanying the report: “What savers really need is a strong, single regulator to act in their interests."

She added: "We are not convinced that the FCA is sufficiently focused on pensions. The comment made in evidence to us that it can’t 'stop fools acting like fools' does not inspire confidence in the FCA’s willingness to be proactive in protecting savers."

In a statement responding to the report, the FCA pointed to progress it had made so far.

It said: “Working with DWP [Department for Work and Pensions] and TPR [the Pensions Regulator], we have introduced independent governance committees and a cap on the amount that can be charged in fees for people saving in default funds, which are huge steps forward in ensuring value for money for consumers.”

Carolyn Saunders, head of pensions at law firm Pinsent Masons, said that beyond regulatory overhaul the industry could enact real change by focusing on financial education and engagement, particularly though use of technology.

“Ultimately you need to help people protect themselves and that’s all about making sure [they] understand enough about the industry and engage in it… that’s a much longer-term project," she said. 

Ongoing review

The WPC's report made several additional recommendations relation to the regulatory overhaul and auto-enrolment:

• A priority for the proposed independent commission would be to address the high charges and poor governance of older legacy schemes exposed in the Independent Project Board’s report of December 2014.

• The report also called for review of the current range, suitability and accessibility of retirement products available to savers and emphasised the need to develop flexible annuity-type products.

• The next government must confirm the next stage of plans for automatic transfers at an early date. The committee thought this process would be assisted by a focus on the development of robust IT solutions to cater for the open network of transfers proposed by the DWP in February.

• Significant work lies ahead to continue the success of auto-enrolment across smaller employers. The annual earnings trigger, contribution rates and the ongoing levels of opt-outs should be reviewed on an ongoing basis alongside further consideration of how pensions saving can be better delivered to lower earners and the self-employed.