Last month, the FCA and TPR published their joint pensions’ strategy. This is a positive step but, through a longer lens, is also the latest step in a complex and sometimes fraught story, with the DWP intervening every now and then to change the terms of engagement.
Against this broader landscape, the new strategy is the beginning of an important new phase, but this has been difficult territory for regulators and events could prise them apart again.
For one thing, the boundary between the responsibilities of the FCA and TPR has always been jagged, which has made it difficult for them to cooperate as much as they might want. It is, for example, a much more complicated arrangement than the FCA and PRA have.
Pensions have also become increasingly political over the last decade. Sometimes, intervention has followed a long policy process (e.g. Auto Enrolment), at others it has been a deliberate surprise, the announcement of pension freedoms in the 2014 budget being the prime example.
It’s also worth recalling that, had Labour won the 2010 election, it might well have brought pension regulation together under the TPR. Given the increasing importance of pensions and the enormous breadth of the FCA’s responsibilities, this idea might come back onto the table at some stage.
The strategy contains little that is unexpected, but there is often value in bringing together existing regulatory thinking and making sensible joint commitments.
The recent history of this sector has not been kind to either regulator. TPR has been criticised over its lack of intervention in Bhs and Carillion, while the FCA’s rules around pension freedom haven’t proved sufficient to protect various groups of pensioners – most obviously at British Steel – from being financially exploited. Consequently, using the strategy to create a new baseline, while recognising the regulatory challenges ahead, makes complete sense.
However, there are at least three hurdles the regulators will need to get over if the strategy is to be judged a success:
- The importance of pensions to the UK economy and UK households is growing, and will continue to attract bad actors who will test whatever regulation is put in place. Neither the FCA nor TPR is really set up, or resourced, to deal with this (yet).
- Partly as a reflection of this, the strategy is essentially a policy-focused document. It is true there are implications of greater supervisory effort but, without additional resources, it may be hard for TPR to do a substantively better job against a potentially growing set of problems, while supervision and enforcement at the FCA will always have to juggle multiple other priorities.
- Powerful trends are also pulling against more effective pension regulation. These include the relative stagnation of much of the rest of the economy, the ageing population (I’d expected to see more reference to the FCA’s work on this), and the growth of self-employment and the gig economy. These are acknowledged in the strategy but over time there will need to be more action to counter their impact.
All of which brings us inexorably back to regulators’ long held desire to improve consumers’ understanding and decision making, one of the strategy’s areas of focus. However, the complexities of pension legislation and products leave the vast majority of consumers relying on the skill and diligence of trustees and on the advice they receive. A radical shift in this area seems unlikely. And there’s also the politics…
The Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) have today launched a joint regulatory strategy aimed at strengthening their relationship, and taking joint action to deliver better outcomes for pension savers and those entering retirement.