The Pensions Regulator’s Corporate Plan, published in May 2014, clearly demonstrates the increasing reach of pensions regulation. As the Plan points out, the Regulator’s responsibilities have been extended since it was established in the Pensions Act 2004. In 2008, it was given the task of overseeing auto-enrolment. Recently, government has announced that it will be given a new statutory objective requiring it to ensure that sustainable growth is not adversely affected by its approach to defined benefit funding. In addition, issues such as pensions liberation and the perceived governance gap in defined contribution schemes raise further challenges. If the additional duties given to the Regulator in relation to some public sector schemes are added to the mix, it is easy to see why the scope of regulation has grown.
And yet many will need convincing that more regulation in its current form is the answer – particularly given the increased operational costs identified in the Plan. The Plan identifies the need for 583 full-time employees, with the possible additional appointment of staff to be employed in connection with IT infrastructure and systems. Over the period of the Plan, costs (excluding the exceptional IT infrastructure replacement) rise by over 40% – much of which is accounted for by the need to police auto-enrolment. The rapid growth in its regulatory activities has resulted in a large and challenging organisation.
However successful the Regulator has been in its initial phase, there are areas of potential concern. One such area is the content of regulatory guidance and other material. The Regulator must of course comply with relevant statutory requirements in furtherance of its objectives, and one of its successes has been its commitment to education and information, reiterated in the Plan. It sees this as a way of ensuring that ‘those who govern schemes are aware of, understand and engage with the obligations and the standards set out in law and our regulatory material’.
It is essential to see and understand the views of the Regulator set out in Codes of Practice and other guidance. It is also important to understand the implications of taking a different course of action from that set out; not all material published by the Pensions Regulator has the same status. But in all cases there are dangers if the Regulator’s views are considered as the only possible courses of action that are permitted in law or that comply with it. Pensions issues are complex and often matters of judgement; there may be no ‘right’ answers. Pension schemes also differ markedly from one to the other, and while standard approaches may be good starting points they are just that. One size does not fit all.
Repeating extracts from regulatory guidance may seem the safe thing to do, but it will not assist real scheme governance if trustees are deterred from making their own minds up about the issues that confront them. Of course they will need to consider regulatory guidance, just as they will consider professional advice. But it is their job to make the decisions that seem right to them in the context of their own scheme’s trust deed and rules and wider legal requirements. They are responsible, not the Pensions Regulator.
It is therefore heartening to see that some aspects of the Regulator’s work have been identified for improvement. Further expert support and services to the regulatory teams will be welcome, as will the strengthened approach to the management of business change: ‘… the better sharing of expert legal knowledge, providing enhanced case management support and improving the recovery plan valuation process.’ Greater consistency between case management teams would be welcomed by many.
The increasing size and complexity of the Pensions Regulator and rapid changes in its role inevitably give rise to challenges. Striking the right balance is not easy. But change is probably necessary if it is to deliver its aspiration to transparency and proportionality.