WORKPLACE PENSIONS GOVERNANCE should be overseen by a single regulatory body, the latest Work and Pensions Committee report said.
The sixth report of the Commons committee’s 2012-13 session, Improving governance and best practice in workplace pensions, argued the introduction of auto-enrolment means “rigorous pension scheme governance is essential”, Accountancy Age’s sister publication Professional Pensions reports.
However, it said the complexity of multiple regulatory bodies – the Pensions Regulator (TPR) and the Financial Services Authority’s (FSA) successor agencies, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) – risks creating gaps in governance standards.
Committee chairwoman Dame Anne Begg said: “It is essential that all members of workplace pension schemes are protected from poor governance, irrespective of the particular scheme they are in.
“We do not believe this is always the case under the current regulatory system and evidence from the regulators failed to convince us otherwise.”
The relationship between TPR, which has responsibility for trust-based schemes, and the FCA, which now governs contract-based schemes, must be stronger than previous joint work arrangements to ensure defined contribution (DC) schemes are properly managed during the roll out of auto-enrolment, the report said.
However, it added that the committee is “not convinced that the FCA is the appropriate body to regulate contract-based pension schemes”.
If it does retain the remit to monitor contract schemes, the FCA “must adopt a pensions-specific and proactive regulatory strategy”, and should establish a dedicated team for the task.
The report concluded: “We remain concerned about current regulatory gaps and the potential for further gaps to arise as a result of three regulators having a role to play in pension regulation.
“We believe that it is necessary for a single regulatory body to have sufficient powers to ensure that all members of workplace pension schemes are given adequate and consistent protection. We therefore recommend that the government reassess the case for establishing one body with sole responsibility for regulating workplace pensions.”
The report also addressed some of the most urgent issues for regulatory review, such as the impact and level of member-borne charges.
It welcomed trends towards lower charges in schemes for auto-enrolment, but Begg added “a good average is not sufficient” and called on TPR to carrying out an urgent review of high-charging legacy schemes.
She said: “The government should also regularly review its policy on capping charges for auto-enrolment schemes and must act without hesitation if it becomes apparent that some members are at risk of detriment.”
Begg also said that “poor” communications were “a serious cause for concern”.
The report recommended the government should assist employers with contract-based arrangements set up governance committees for their schemes and drive forward with its development of a “defined ambition” risk sharing model.
It also raised concerns about the impact of the Department for Work and Pensions’ (DWP) ‘pot follows member’ proposals, which were confirmed by pensions minister Steve Webb this week on members’ savings.
TPR chief executive Bill Galvin said: “We welcome the select committee’s report, which highlights the importance of good governance and quality features in defined contribution schemes, as we progress through automatic enrolment.
“We are working with the DWP and FCA, focusing on what needs to be done to deliver adequate levels of member protection, regardless of the type of scheme chosen by an employer.”
An FCA spokeswoman said the watchdog welcomes the report and will study its findings and produce a written response “in due course”.
A DWP spokesman said: “The committee’s report on workplace pensions is a welcome contribution. It addresses a number of issues we are looking at to ensure people continue to have access to value-for-money pensions, including charges, fees and risk sharing, and we will respond in due course.”
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