THE PENSIONS REGULATOR: PROGRESS IN ESTABLISHING ITS NEW REGULATORY ARRANGEMENTS
Publication of the Committee's 15th Report, Session 2007-08
Edward Leigh MP, Chairman of the Committee of Public Accounts, today said:
"The Pensions Regulator, set up following a very critical report by this Committee on its predecessor Opra, is doing a much better job at regulating the pensions industry. Unlike the unlamented Opra, the Pensions Regulator actually has processes for identifying the pension schemes posing the greatest risks to members' benefits.
"The Regulator has made good progress on regulating final salary schemes but far less in the considerably riskier area of money purchase schemes. This is especially important given the increasing emphasis on money purchase schemes. The Regulator must now target the riskiest of those schemes.
"It is extremely important that, where schemes are being managed badly, the Regulator step in to ensure members' benefits are being protected. So far it has appeared reluctant to use its enforcement powers. It must also do more to remedy the widespread lack of understanding of money purchase schemes by members, especially that they bear entirely the risk that the funds accumulated on their behalf might not provide a reasonable pension."
Mr Leigh was speaking as the Committee published its 15th Report of this Session which examined the Pension Regulator's progress in establishing a new regulatory approach since its establishment in 2005
The number of people contributing to work-based private pensions schemes has declined in recent years, but some 4 million people remain active contributors. Approximately 20 million people have contributed at some point in their lives, and the value of the funds managed by final salary schemes alone exceeds £700 billion.
The Pensions Regulator (TPR) was established in April 2005 to regulate work-based pensions. It replaced the Occupational Pensions Regulatory Authority (Opra), on which our predecessors reported in 2003. Their report found that Opra's regulatory arrangements failed to address major risks to pension scheme members and recommended changes both to Opra's objectives and functions, and the way in which Opra operated.
Since its establishment, TPR has acted to put the regulation of pension schemes on a firmer footing. It now takes greater account of risk in deciding where best to focus its regulatory work and has stronger powers to obtain information and intervene to protect members' benefits. There are signs of improvement in the adequacy of the funding of final salary pension schemes.
However, TPR has made a slower start in the regulation of money purchase schemes, and much remains to be done in improving standards of scheme governance and communications with members. Further work is also needed to improve the information held by TPR about schemes and to use this information to target regulatory effort at individual schemes. It must also use its new powers, and clearly explain the reasons for their use, in order that the pensions community understand its expectations. In a field such as pensions, with long term liabilities subject to short term volatility, TPR will need to be alert to the scope for new problems and risks to emerge.