TPR warned over DC overlap with FSA

The Association of British Insurers has warned the Pensions Regulator against overlapping with other organisations such as the Financial Services Authority in its attempt to regulate risks to defined contribution schemes.

In its seven-page submission to the Pensions Regulator’s consultation on the risks of DC schemes - which closed on 2 February- the ABI says the Pensions Regulator should also provide more information on the different risks facing trust based and contract based DC schemes.

The organisation points out while it recognises the Pensions Regulator’s responsibility to “identify and mitigate risk in all forms of work-based pension provision, including DC schemes” it warns TPR “needs to acknowledge that insurers are already supervised by the FSA and that the promotion and sale of contract-based DC schemes is subject to detailed regulation”.

The ABI response also warns there are a number of other fundamental risks to be considered by the Regulator’s proposals, including the possibility that an increase in employer requirements could lead them either scale back or abandon their current pension provision.

And it points out there also is the risk that employees will simply not join their employer’s scheme, even if one is available, as they will not take the time to consider carefully whether the likely benefits will meet their needs in retirement.

However, the ABI warns these risks “cannot be mitigated solely by the Regulator’s actions”, and instead it suggests the regulatory approach should be carefully “framed and coordinated with the actions taken by other regulators” to ensure these risks are “not inadvertently increased”.

The organisation points out there needs to be a “more explicit presentation” of the differences between trust-based and contract-based schemes, as although they cover similar numbers of members it warns each presents different risks.

It says future plans put forward by the Regulator will also have to reflect the differing sizes of schemes, from those covering two or three employees, to those covering many thousands.

“The Pensions Regulator will need to work closely with the FSA in particular to develop proposals that will cover this range of schemes, as well as regulation of the system of Personal Accounts to be introduced from 2012,” says the ABI report.

Although the organisation agrees the first step should be an increased in additional information and guidance to improving member understanding, it echoes Standard Life’s warning suggesting the Regulator should not be drawn into setting charges for schemes.

It points out on the issue of “unduly high charges” the Regulator should “avoid taking on any role as an economic regulator”, as decisions on charges will be for providers, employers, members and trustees where appropriate.

Instead, the ABI suggests the Regulator should also “consider the scope of the good practice topics carefully”, in order to “avoid giving inadvertent approval to particular types or levels of charges”.

It adds: “The idea of providing examples of ‘benchmark’ charges – apart from those already set out in legislation – presents the danger of setting up the Regulator as a type of economic regulator.”

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