The Pensions Regulator’s corporate plan for the period 2018 to 2021 was published on 10 May 2018 in which it vows to become ‘a clearer, quicker and tougher regulator.’ The Regulator aims ‘to ensure its expectations are better understood and to use a wider range of regulatory tools with the aim of putting things right and keeping schemes on the right track for the long term so members receive the benefits to which they are entitled.’
A changing pensions landscape
The Regulator notes that there are a number of key trends which are impacting the environment in which it operates:
- The impact of changes in the economic and political environment. As the economy transitions to a post-Brexit trading environment many scheme employers will need to ensure that they adapt, with any potential impact on the covenant of scheme employers being continually assessed. In addition, market volatility may impact on investment returns which should also be closely monitored.
- A general shift towards an ageing population. People are typically living longer and spending more of their life in retirement. One key risk is that schemes may not effectively manage their cash flow needs as more members become pensioners and the scheme profile matures.
- Opportunities and threats from increased use of technology. The increased risk of information security and cybercrime could see pension schemes being increasingly targeted.
- Auto-enrolment. Since the introduction of auto-enrolment DB membership has declined 15% to around 11 million while membership of occupational DC schemes has increased to over 12 million. However, DB schemes still hold the vast majority of assets.
The Regulator’s priorities
The corporate plan sets out the following eight key priorities for the Regulator to focus on over the next three years:
- Enhancing and executing effective regulatory approaches across all schemes. The Regulator has stated that it will intervene in a wider range of issues, tailoring its approach to the risks and circumstances it faces with a wider range of regulatory tools.
- Promoting good trusteeship through improving governance and administration. The Regulator is keen to improve standards of governance across all schemes and will encourage schemes to explore consolidation or professional trusteeship where the necessary standards are not met. The Regulator has stated that it expects schemes to have a balanced and diverse board of trustees that can challenge and understand advice, as well as having a clear decision making process in place.
- Effective regulation of DB schemes. The Regulator will actively oversee, and intervene where necessary, to maintain the correct level of funding and sponsor support so members’ benefits can be paid as they fall due.
- Effective regulation of DC master trusts. This will begin with authorisation of DC master trusts and the publication of specific guidance. The application process for authorisation will open in October 2018.
- Ensuring employers meet their ongoing automatic enrolment duties. The Regulator will focus on ensuring pension contributions are paid to schemes on time and in line with the contribution rate changes as these come into effect.
- Preparing for the impact of Brexit. Could we really have a blog which didn’t mention Brexit? The aim is to build resilience and understanding to enable the Regulator to respond appropriately and effectively to the Brexit outcome.
- Equipping our people to meet the challenges we face. The Regulator intends to increase its headcount by 12% in 2018/19 to reflect the more interventionist approach it intends to take.
- Delivering the Pensions Regulator of the future. The Regulator intends to adopt an approach to regulation which is more proactive and targeted, and which uses a range of regulatory intervention to identify risks earlier and more effectively.
Lesley Titcomb, the Chief Executive of the Pensions Regulator, has stated that “by delivering on our eight corporate priorities we will ensure the Regulator meets the regulatory challenges of the future and will address the biggest risks facing the pensions industry.”
It is clear from the corporate plan that things are changing at the Regulator: it intends to raise governance standards and become more proactive. Things will not change overnight but it is likely that going forward we will see increased education around the Regulator’s expectations, more involvement from the Regulator at an earlier stage and tougher regulation. Exactly how and when the clearer, quicker and tougher Regulator will emerge remains to be seen, but I think we can all be certain that this isn’t an empty threat.
This blog post was written by Jessica Pigg. For further information, please contact:
Michael Collins, partner, Pensions
T: 0121 234 0236