An alarming gap in pension regulation


As we trundle towards the end of a parliament, of a financial year and of a pension tax regime there is a gung-ho spirit about. The Pension Schemes Act received Royal Assent and the major projects are all intact. None has failed yet.

Yet we know the big challenges fall beyond the scope of this Government, pension freedoms will be exercised the other side of a general election as will the auto-enrolment staging of the vast bulk of our employers. Enforcement of the further measures protecting savers into workplace pensions resulting from the OFT report will be the job of new Ministers and their regulators.

The potential for the ball to be dropped is one thing, but the absence of rules surrounding the playing of the game is another.

It’s been remarked upon that much of the detail surrounding Pension Wise has yet to emerge. What has got less comment is that at least a million employers are set to start pension schemes for their staff without the least knowledge of what they are doing nor guidance as to what to do.

While we have the (barely used) master trust assurance framework in place for trustees, and IGCs in place for contract-based providers, employers have virtually no guidance on what to do.


It is just as well that guidance on pensions is unregulated as there are precious few regulated advisers in a position to advise and those who are advising are generally recommending products they manage.

Employers are being asked to choose a pension but are generally being offered little or no choice. It’s NEST , or at best a choice of NEST or NOW or People’s. At worst it is the home-brew solution of an adviser. The independent in IFA seems, in this market at least, a distant memory.

Whereas the first five million auto-enrolled are in pensions which were advised upon and purchased with a degree of diligence, the next five million look like being enrolled in auto-purchased plans about which no-one knows very much.

These are precisely the conditions in which the scamster prospers with low levels of knowledge among those purchasing and low levels of regulation of the purchasing process.

Part of the reason for this is that most employees do not engage with, or understand, their pensions. Pensions are complicated products, the benefits of which occur a long time in the future for many people

Thankfully, the most foolhardy suggestion, that of a Directory that would have legitimised bad practice, has been dropped. But there is nothing to put in its place -yet.

This is where those who care about the purchasing decisions made by employers on behalf of their staff should be stepping into the regulatory breach. It is now becoming clear that traditional regulations are not fit for purpose, the 6 Principles and 31 characteristics of a DC scheme, put forward by the Regulator are of no purpose. The Master Trust Assurance Framework is neither adopted nor promoted, it is gathering dust on the shelf. There is nothing currently coming out of Brighton to suggest that SMEs and Micros will be protected from their own ignorance.

The buyer side of the DC workplace pensions market is one of the weakest that the OFT has analysed in recent years.  Part of the reason for this is that most employees do not engage with, or understand, their pensions. Pensions are complicated products, the benefits of which occur a long time in the future for many people.

OFT report on workplace pensions (2013)
Other than the obligation to “choose a pension”, there is nothing in Regulation to suggest how this should be done, what makes for a good choice and how that choice should be communicated to staff.

This last point is of particular importance. If we are to have any hope of improving understanding and member behaviours, we need people to be confident into what they are saving into.

Most people who are enrolled have no understanding of where their money is going nor why it is going there. Nor will the people who chose the pensions!

This ludicrous state of affairs is happening because of the absence of any accountability for this part of the process within Government.

The FCA will say that this is part of the DWP’s remit. The DWP will point out that this is a distribution issue and that the distributors are FCA regulated (if regulated at all). The Pension Regulator for auto-enrolment, points to the Pension Regulator for DC schemes who points back. The Treasury is busy elsewhere.

So we trundle on

  • An accountant stands in front of 150 IFAs at the AE invitational in London and states that he is recommending a default pension solution to his clients – no questions are asked.
  • An accountancy network choose a national IFAs master trust solution for it’s 4000 members, no questions are asked.
  • NEST pleads with advisers to recommend its product on its investment merits, no questions are asked.

This is the consequence of allowing the investment of people’s salary to fall off the auto-enrolment agenda from 2012 to today. Since stopped paying attention to the pension, concentrating on middleware and AE compliance, we have lost sight of the wood.

Thankfully, we seem to be awakening from the era of “pension agnosticism”. We can either return to a system of independent advice where employers pay to learn about pensions, or we can have a free for all where advisers and conventional providers compete in a land-grab for as many of the remaining 1.2m employer’s business as they can get.

The question is whether we get a referee or whether this turns into an unseemly bun-fight, whether there are rules that govern good practice (which are kept) or whether it is every man (and conman) for him or herself.

We have about six months to get ourselves sorted on this. By the time we get to Q4 2015, nearly as many employers will be preparing to stage as had staged in the previous three years. They will be preparing often without advice and with little guidance. It is critical they do the right thing by their staff.

If we do not get some proper purchasing into the system, we can expect to see employer and employee contributions being woefully invested.

In this world, the best lack all conviction

while the worst are filled with a passionate intensity. (WB Yeats)

Let us hope it does not come to that, but for us to avoid this problem, we should, as the Regulator asks us to do, pre-plan.

Except this time, we look like we are going to have to do the Regulator’s job for them.


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11 years providing financial advice to individuals directly and through employers. 14 years within insurers working with advisers to provide better DC and DB outcomes. 25 years left to make a difference!

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