Responding to the Work and Pensions Select Committee's review of the governance of workplace pension schemes, the Government said that there would "always be a need" for the financial conduct regulator to oversee aspects of contract-based schemes relating to investments (13-page / 1.3MB PDF).
"The dual regulatory system creates some awkward tensions in the current pensions market," said pensions expert Mark Baker of Pinsent Masons, the law firm behind Out-Law.com. "But the silver lining is that, for the foreseeable future, we at least know where we stand."
"We can expect a joint document from the Pensions Regulator and the FCA in the autumn. That document will sit alongside the Regulator's new set of guidance documents for trust-based DC schemes. The Regulator faces a really hard balancing act in drawing up these documents; because they need to be hard-hitting enough to achieve their aims, but also flexible enough to cover the very wide range of DC schemes out there, including the rapidly growing master trusts," he said.
The Pensions Regulator regulates all work-based pension schemes, but shares responsibility for so-called 'contract based' schemes with financial services regulators. In its April report, the Work and Pensions Committee said that having multiple regulators could result in "gaps in regulation".
"We believe that the overall regulatory architecture is sound and, given there will always be a boundary between the roles of the FCA and TPR, there are no current plans to fundamentally change the arrangements for regulating contract-based pension schemes at this time," the Government said in its response.
"However, as the market is evolving in response to automatic enrolment, it will always be necessary to test whether the regulatory interventions in relation to particular issues are effective. We are clear that the regulators should work increasingly close together to ensure that risks are jointly managed and members are protected regardless of how their pension is provided. This is being achieved through a variety of means," it said.
Between five and eight million people will begin saving more towards their retirement or saving for the first time under the Government's automatic enrolment programme, which began for the largest employers in October last year. The vast majority of those savers will be enrolled into DC schemes, under which the benefits provided on retirement depend on the performance of the saver's investment. Around four million people in the UK are currently saving into one of these schemes according to the Office of Fair Trading (OFT), which is due to report back on the results of its own work on whether these schemes provide value for money to savers.
In its report, the Government also responded to concerns in relation to pension scheme governance, small pension pots and high charges raised by the Work and Pensions Committee. It said that it would "explore" whether it should require an additional layer of contract-based DC scheme governance by an additional body representing the interests of pension scheme members, although it would probably not be "realistic" for this body to be employer-specific, it said. The governance body would replicate the function performed by the trustee board in trust-based schemes, it said.
The Government has already announced that it will ban consultancy charges for pension schemes used in auto-enrolment, and will consult this autumn on proposals to cap default fund charges. It will not pre-empt the work of the OFT by taking action on pension scheme charges generally at this stage, it said. A mechanism which will allow pension savers to automatically take small auto-enrolment pension pots with them when they change job is included in the Pensions Bill, which is currently before Parliament, it said.