Without getting into the rights and wrongs of individual decisions at given points in time, it’s hard not to see the relationship between pensions and regulation as a cautionary tale.
This latest anti-scam campaign by the FCA and TPR follows the spring announcement that they were working together on a joint pensions strategy, and a succession of stories – from bhs to British Steel to Carillion – where pensioners appear to have been the losers.
Taking a longer view, one that goes back at least as far as Robert Maxwell’s raid on the Mirror Group pension fund in the early 1990s and the much wider pensions’ mis-selling scandal of a few years later, its hard not to argue that pensions have become both politicised and much more of a financial product over the last three decades or more.
The legacy of both scandals is still with us. The Maxwell affair was one of the origins of the late Sir Adrian Cadbury’s Code, which has evolved into the (newly revised) UK Corporate Governance Code. And pensions mis-selling partly shaped the FSA’s early years and led a generation of regulators to shy away from directly overseeing redress schemes, leading to the more arm’s length (but not obviously better) approach to redress we see with PPI and interest rate hedging products.
Meanwhile, responsibility for pensions has gradually been transferred from the state and the employer to the individual and the financial services industry, and the nature of the product has been morphing away from what was essentially an insurance policy towards an investment product. Lots of forces have combined to produce these shifts, including increasing longevity (until now), less settled career patterns and the changing attitude of successive governments to the role of the public sector. The combined effect has been to place steadily greater responsibility on regulators, a trend that show no sign of slowing.
The pension scams the FCA and TPR are targeting stem from the so-called pension freedoms introduced in 2015. When these were announced in the 2014 Budget, the FCA was given only a year to introduce them, effectively bouncing the regulator into a truncated policy process. That the resulting regulation was less than perfect is therefore no surprise, although the risks we see crystallising were always present.
So where does it leave us? As is often the case with regulation, the current position presents both opportunities and risks for both firms and regulators.
For firms, with the increasing centrality of pension wealth to financial services generally, both opportunities and risks are obvious, with the latter revolving around various flavours of mis-selling and the mix of fee and commission charged. Regulation can only ever be part of the answer to this, and so the challenge is about how the industry can itself build a sustainable business model around a pensions sector that is changing faster than probably ever before.
For the FCA, most obviously, pension freedoms generally places renewed focus on the debate as to whether firms should owe consumers a “duty of care”. Even more difficult, however, it challenges the regulator to find the right balance between innovation and choice on the one hand and consumer protection on the other. At the moment, the rhetoric often portrays these as synonymous, but I suspect pensions is not the only areaswhere this isn’t always the case.
Since rules were relaxed in April 2015 to give people over the age of 55 freedom to spend their pension pots as they wished, savers have been vulnerable to being tricked into transferring large sums of money to exotic or fraudulent investment schemes.