There is speculation that the current system, where the Financial Conduct Authority (FCA) regulated insured and self-invested personal pensions and the Pensions Regulator (TPR) regulates occupational pensions has broken down. It is possible to offer an occupational business whose primary responsibility is to accept transfers from personal and DC occupational pensions and such a scheme can offer the investment pathways laid down by the FCA or pensions as recognised by defined benefit schemes. We may soon have a second type of pension regulated by the Pension Regulator, the Collective DC plan (CDC), Royal Mail already have one of these and we are waiting to see what the legislation and regulation for CDC will look like.
Add to this the responsibility for managing the auto-enrolment administration for all workplace pensions (contract based and occupational) , which rests with TPR and you can see how broken our regulatory system looks to those in Commonwealth countries (Canada and Australia in particular). These countries suggest that there is a simplified regulatory system in the UK so that trustees, IGCs, executives, advisers and members know who is regulating what.
In fact, pensions have become a matter of confusion for advisers, trustees and regulators
This problem is not getting easier with pension freedom, in fact it is breaking down the alignment between TPR and FCA. When it was required that people had to annuitise (unless means tested to drawdown) there was alignment between defined benefit pension-based schemes and group and individual personal pensions. But in 2014, the arrival of freedom to do as we like, has led to defined benefit pensions being criticised as being inflexible. The immediate reaction of the advice market was to encourage transfers away from defined benefit pensions to pension free wealth pots.
The advantage of doing this in 2015 to early 2022 was that gilt yields were very low meaning liabilities were valued very high and cash equivalent transfer values were often 40 times or more the pension given up in the transfer. What happened was that the FCA had to step in to protect people’s pensions (most notoriously at British Steel) but elsewhere in everywhere where schemes were valuing CETVs with reference to low gilt-based discount rates,
There was no alignment between pensions and pot, or between the FCA and TPR and those who found themselves being advised on what to do , discovered that advice is extremely expensive.
In fact, pensions have become a matter of confusion for advisers, trustees and regulators and since 2022 when gilt yields made transfers less attractive to consumers (members) of DB pension plans, transfers have reduced fast and the FCA and TPR are no longer worrying about this regulatory issue from pensions. Things should be quiet and there should be no contention about having two regulators
So why is there a thinking that the FCA and TPR are not properly regulating pensions? The problem is that “wealth management”, the job of IFAs is quite different from pension management, as carried out by administrators of defined benefit plans. Occupational pensions which offer pension freedom , like GPPs, look much more the kind of pensions that should be regulated by the FCA. They don’t have any dealing with the Pension Protection Fund (PPF) and there is no risk of an employer not paying DC pensions (they have no responsibility). Even CDC does not carry an obligation on an employer beyond paying contributions till the employer chooses not to.
We are reaching a point where the pressure on TPR and FCA from two systems, one requiring pensions to be paid and one not (DB and DC) makes for confusion not just with advisers but with savers who are increasingly asking why their savings aren’t buying them pensions.
The Government is worried about this and is contemplating requiring DC workplace pensions to offer a pension (not freedoms from them) to savers into DC plans. These types of pensions may be the less stressful CDC plans or they mean DB plans secured by capital and paying something rather attractive next to an annuity. We will here more on this when the pensions bill is published later in the spring or summer.
My guess is that the pensions regulator will at this point be able to point at workplace pensions as “pensions” and the FCA will be responsible for wealth management as the kind of retirement planning, they regulate. Because right now, there is insufficient differentiation between wealth management and the workplace pensions that offer sums too small for IFAs. SIPPS and wealth managers, while workplace pensions are getting stuck with freedoms their members do not want. Nest has over 13 million members!
The answer to the question in the title should be the Pension Regulator, because you have a pension. The FCA should regulate all retirement planning which isn’t pensions including SIPPs, ISAs and other investment products and leave the Pension Regulator to deal with the mass market and those who are happy to follow a pension process, even when they have the money to afford wealth management
