The Financial Conduct Authority (FCA) and The Pension Regulator (TPR), together referred to as the Regulators, last week published a joint regulatory strategy document (the JRS) aimed at regulating the pensions and retirement income sector.
The JRS follows a joint Call for Input (CFI) released in March this year. It sought input from everyone with an interest in the sector to contribute to the joint approach.
The overarching aim of the JRS is to try and combat people having insufficient income or not having the income they expected in retirement. We take a look at how the JRS aims to tackle this issue and how it is to work in practice.
The pensions sector is continually developing with the pensions freedoms, the move towards non-advised drawdowns and DB to DC transfers having increased the risks that a significant number of people are not saving sufficiently to meet their needs in retirement. The Regulators have investigated these trends and identified four issues which they "believe will have the greatest impact over the next five to ten years". The four key issues are:
The regulatory strategy and action plan have four clear objectives in line with the key issues identified.
1 - The first objective of the JRS is that "pension and retirement income products support people to increase their financial provision for later life". This, it is hoped, can be achieved by the coordinated actions of Government, employers / employees and consumers. The TPR hope to ensure that employers not only comply with their auto-enrolment (AE) requirements but also increase the contributions they are making as well as increasing employees contributions. This will be achieved through a combination of support and communication with employers but also enforcement against non-compliance and late or missing contributions.
2 - It is also envisaged that "pensions are well-funded and invested appropriately". In the case of both DB and DC pensions, the funds need to be invested appropriately with a balance struck between investment returns and levels of risk. To achieve this, the Regulators, amongst other initiatives, intend:
3 - The Regulators intend that "pensions are well-governed, well run and deliver value for money". Pension providers should have strong administration processes and systems and governance should be clear and effective; funds should also be protected from cyber-crime. Both regulators intend using a broader range of powers to counteract poor governance and administration by supervising master trusts, proactive regulation of the public service schemes and assessing governance arrangements in unit-linked and with-profit funds. They also intend increasing regulatory interventions and collaboration to promote data quality and security.
4 - The final objective is for people to "access helpful information, guidance and advice that enables them to make well-informed decisions". Engagement, understanding and support are the key ingredients to assist people in making the necessary good decisions. Together, the Regulators intend launching a joint review of the consumer pensions journey in 2019 to not only examine the information pension schemes and providers supply to customers but also the guidance received from advice services, which all help the customer make well-informed decisions.
Joint initiatives to improve consumers' understanding and engagement include supporting technology-based innovation and implementing the Retirement Outcomes Review (ROR) proposals to improve the quality of information consumers are receiving. There are also proposals to support the DWP and the industry on pension dashboard implementation and specific focus on improving consumer outcomes from DB transfers.
Although the Regulators have distinct regulatory responsibilities it is believed that by working together they can better assess risks and harms, implement cross-sector initiatives by sharing information and ensuring policies are aligned (where possible) whilst carrying out joint engagement with external stakeholders. It is intended that the changes will assist the Regulators to have "a greater impact" – only time will tell if this is achieved.
The intentions of the regulators are admirable and, in a field where confusion still thrives, any attempt to simplify the customers' journey must be applauded. That said, there remains the possibility that customers and indeed providers will remain confused as to which regulator is responsible and whether too much collaboration makes the Regulators' distinct remits to become less distinct. Further, initial feedback on the ROR, which itself comes to 280 pages will bury customers under a mass of paper known in the lead up to retirement and beyond and one wonders whether good intentions always leads to good practice. It remains to be seen whether the good intentions of the Regulators will also translate into beautiful friendship.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at December 2018. Specific advice should be sought for specific cases. For more information see our terms & conditions.