A long-term strategy for pensions, and consistency of regulation, have been high on the industry's wish list for many years.
The joint pensions strategy between the FCA and The Pensions Regulator (TPR) is therefore a welcome development. While the regulators have made efforts to be consistent with each other, their differing objectives have an impact on their day-to-day approach and the firms they regulate.
Their call for input published last week poses some broad questions about how they could collaborate. Here are some of our initial thoughts:
1. Close the gaps between regulators
In implementing automatic enrolment and introducing cost transparency rules, both regulators have been successful and appeared seamless.
Conversely, some of the areas where the FCA and TPR have been attacked for perceived failings could be seen as gaps in between the two regulators rather than the responsibility of either.
For example, the path that members of DB schemes have to take when they transfer out; and small occupational schemes being used as a vehicle for dubious unregulated investments.
A joint and seamless approach to issues such as these would be welcome and may require extra support from central Government. It's important that another gap does not emerge, for example in the retirement market.
2. Don’t forget the other regulator
TPR is now a conduct regulator, like the FCA, given its new regime supervising Master Trusts. By the same token, TPR is also a prudential regulator, like the Prudential Regulation Authority, and is busy setting capital requirements for Master Trusts.
If the DWP proposals for commercial consolidators or ‘superfunds’ set out in the DB White Paper are pursued, then TPR will need to devote a lot of attention to oversee the solvency of those too.
As such, both FCA and TPR will need to work jointly with the PRA - this is important both for the sake of a level playing field for insurers and others, but also for the security of pension savers who should not face greater risks just by virtue of the type of firm that looks after their benefits.
3. Recognise where competition benefits savers
Major projects the ABI has run with other industry bodies recently, like improving transfers and driving forward the pensions dashboard, have aimed to make the market work better for customers.
While both regulators are strong supporters of these projects, a key difference is that the FCA used its competition powers to kickstart them. TPR doesn't need to replicate this competition objective, and the FCA shouldn’t view all problems through a competition lens.
But both should recognise the reality that FCA regulated firms and TPR regulated schemes do compete with each other, and manual processes and poor data – which are more prevalent in parts of the occupational pensions sector – can inhibit competition and act as a drag on the efficiency of the entire industry.