Defined BenefitJun 6 2018

ABI pushes for pension consolidators to be PRA regulated

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
ABI pushes for pension consolidators to be PRA regulated

New defined benefit (DB) pension consolidators coming into the market should be regulated by the Prudential Regulation Authority (PRA) and not The Pensions Regulator (TPR), the Association of British Insurers (ABI) has argued.

Giving evidence today (6 June) at the Work & Pensions select committee hearing about the government’s defined benefit white paper, Yvonne Braun, the ABI’s director of policy, long term savings and protection, argued that the pensions watchdog has “very little expertise of regulating for profit entities”.

She said: “They [The Pensions Regulator] now have a system for master trusts, but that is brand new and untested.

“I would question why we would trust the regulation and supervision of for profit entities to The Pensions Regulator and not to the organisation that is already out there doing it [the PRA].”

In its defined benefit (DB) white paper, the government revealed plans to promote consolidation in the defined benefit pension market, in which two thirds of the 5,600 schemes have funding shortfalls.

Following the publication of the white paper Alan Rubenstein, former chief executive of the Pension Protection Fund, was the first to act by launching the Pension Superfund, which will accept bulk transfers from final salary plans and consolidate them into one occupational pension scheme.

The new scheme will only take in pension funds that are fully funded.

second consolidator, Clara, is being created and is expected to come to market in the next few months.

Lesley Titcomb, The Pensions Regulator’s chief executive, told FTAdviser that the pensions watchdog should be in charge of approving these new consolidators, and that a similar system to the master trusts could be applied.

Ms Braun argued insurance companies “are the true consolidators” in the DB market, through buy-outs.

In these type of transactions, an insurance policy is issued to each pension scheme member individually which enables the pension scheme to wind up.

She said: "It is a sector that is offering people a near cast iron certainty of their benefits, and ultimately this is what we should first and foremost consider.

“The price for buy-outs that has been often talked about as prohibitively expensive reflects a very robust regime put in place by Solvency II, and that reflects ultimately that member benefits are paramount.”

Ms Braun said the insurance sector's “robust regulation” contrasts with the rules being propose for the defined benefit superfunds.

She said: “We are talking about employers being able to walk away from their pension promises, and the [Department for Work & Pensions] DWP has said themselves that represents a seed change and it is very significant.

“We should have learned from the financial crisis that it is not a good idea to use, essentially, gaps in regulation to enable for profit entities to possibly jeopardise the benefits of scheme members.”

maria.espadinha@ft.com