The Pensions Regulator (the Regulator) has completed a review of the way that it regulates workplace pensions in the UK and has announced a new approach. This new operating model is designed to be systematic, flexible and responsive and will be put into place by the Regulator within the next 12 to 18 months.
Four key areas will form the basis of the new approach. These have been drawn up taking into account the main risks identified by the Regulator:
- setting clear expectations;
- identifying risk early;
- driving compliance through supervision and enforcement; and
- working with others.
Levels of interaction
As part of this new proactive model, all pension schemes can expect a higher level of interaction with the Regulator.
The interaction will be predominantly of low and medium intensity. The Regulator uses examples of information gathering and obtaining confirmation from schemes as to the way in which they are satisfying their duties.
A small number of higher risk schemes will be subject to one to one supervision or have an assigned contact. Improvement plans may be issued where the Regulator has concerns.
The Regulator notes that intensity will step up where there is a lack of engagement. The Regulator emphasises that its enforcement powers would not automatically be engaged at this stage as schemes would still have the opportunity to work with the Regulator to rectify issues. However, there will be certain circumstances in which its enforcement powers would be utilised.
How will schemes be regulated under the new approach?
The Regulator will be using a new range of interventions to address risks sooner and take action where necessary.
All schemes have annual contact with the Regulator through the requirement to submit a scheme return and, for DC schemes, the requirement to submit a chair’s statement. Further intervention will be determined by the level of regulatory risk identified by the Regulator. The expectation is that around 20-40% of schemes will be subject to supervisory interaction. This may range from campaign style intervention aimed at improving compliance standards to information gathering through meetings and monitoring.
What to expect?
The Regulator will be much clearer in clarifying its expectations and will be undertaking a full review of its guidance. It is going to improve its use of data so that it can create risk profiles to identify what action should be taken.
A new Supervision Team has been set up which will intervene more and with a far expanded range and number of schemes and employers.
The number of schemes in one-to-one supervision will increase, although this will only cover a small proportion of the overall schemes regulated. Other lower level interventions will take the form of a nominated Regulator contact or correspondence through letters, phone calls and meetings.
What has the Regulator done so far?
The Regulator has already begun trialling new ways of working including:
- conducting thematic reviews of contributions and value for members in DC schemes;
- developing its “horizon scanning” methods to assist it in recognising risks and adapting its approach; and
- producing new guidelines to reflect its recently publicised tougher approach to regulation.
It has started contacting a range of schemes that were potentially at risk because of the Carillion collapse with intervention being used where it deems this necessary. The Regulator has been contacting trustees of small DB schemes to obtain information about key risk areas in their valuations. It has also recently contacted schemes impacted by significant corporate events and intervened at an early stage where appropriate to ensure that members are protected.
The Regulator will also publish the strategy which it has formulated together with the Financial Conduct Authority. This will set out each regulator’s respective remit, how the two bodies will work together and their analysis of the main risks which they believe will have the largest effect in the coming 5-10 years.
The new ways in which the Regulator will work have not yet been fully implemented but schemes have already started seeing the effects of the new approach. It is clear that the Regulator is taking a tougher approach to improving standards in the pensions sector and that, in the future, all schemes can expect to have more interaction with the Regulator.