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MPs back calls for single regulator for workplace pension schemes


The Work and Pensions Committee of the House of Commons has called on the Government to "reassess the case" for a single regulator of workplace pension schemes.

In its report, the committee said that "rigorous pension scheme governance" was becoming increasingly "vital" as a result of the Government's automatic enrolment programme, which will see many workers enrolled into workplace pension schemes for the first time.

The Pensions Regulator regulates all work-based pension schemes, but shares responsibility for so-called 'contract based' schemes with financial services regulators. Earlier this month, a single financial services regulatory body was replaced by the Financial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA). The Committee said that having three regulators could result in further "gaps in regulation".

The committee also used its report to highlight high pension scheme charges with "the potential to cause serious consumer detriment". It called on the Government to ban certain charges if the pensions industry did not make "significant progress" towards ending them in the near future.

"The plethora of costs and charges that can be applied to pension pots are not only confusing, they can seriously impact on an individual's retirement income," said committee chair Dame Anne Begg. "We are particularly concerned about member-borne consultancy charges and those charges applied to deferred members – people who stop contributing to their pension schemes. Neither can be justified; both should be banned."

"The trend towards lower pension scheme charges is welcome. However, a good average is not sufficient and we remain concerned by the potential for consumer detriment in schemes that persist in retaining high charges. The Regulator should carry out an urgent review of these outliers and take action if it considers this necessary," she said.

Commenting on the regulatory gaps identified by the committee, she said that a single regulator "must be invested with sufficient powers to ensure that all members of workplace pension schemes are given the level and consistency of protection they need".

The committee's findings echo those in a July 2012 report from public spending watchdog the National Audit Committee (NAO). The report said that the number of bodies playing a regulatory role made it difficult to gauge whether workplace pension schemes were providing value for money.

"The Work and Pensions select committee has now reached a similar conclusion," said pensions law expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com. "Auto-enrolment has brought the problem to a head. If employees are going to start saving for a pension and stick at it, they need simplicity and consistency. It doesn't make sense to them to receive very different information about their savings pots simply because one is with an occupational pension scheme and the other with a personal pension scheme."

"In January 2013, the Pensions Regulator analysed some of the differences and similarities between its regulatory regime and that of the Financial Services Authority (24-page / 117KB PDF). If there were only one regulatory regime, there wouldn't be any discrepancies in the first place and there would be a level playing field for the different forms of defined contribution pension provision," he said.

Between five and eight million people will begin saving more towards their retirement or saving for the first time under the Government's automatic enrolment programme, which began for the largest employers in October last year. The vast majority of those savers will be enrolled into defined contribution (DC) schemes, under which the benefits provided on retirement depend on the performance of the saver's investment. Around four million people in the UK are currently saving into one of these schemes according to the Office of Fair Trading (OFT), which is currently carrying out its own work on whether these schemes provide value for money to savers.

The Pensions Regulator is currently consulting on new standards for DC schemes in areas such as contributions, investments, government standards, administration, value for money, converting a pension pot into a retirement income and member communications. As part of its announcement on the consultation, it said that it was "working together" with other regulators to ensure similar levels of protection and coherent regulation and enforcement across all work-based pension schemes.

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