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Pensions Regulator and FCA pledge "consistency" on joint regulation of UK workplace pensions


The two regulators of UK defined contribution (DC) workplace pension schemes have pledged to "work together to ensure consistency" in the way that pension scheme members are ultimately treated under the different regulatory regimes.

The Pensions Regulator and Financial Conduct Authority (FCA) have published joint guidance setting out the focus and approach of each regulator (12-page / 102KB PDF), and their commitment to work together to ensure consistency and avoid duplication. The Pensions Regulator oversees trust-based DC schemes, while the FCA regulates contract-based schemes.

Pensions expert Simon Tyler of Pinsent masons, the law firm behind Out-Law.com, said that it was "most welcome" to see evidence of joined-up thinking between the two regulators.

"The guide demonstrates that the FCA and the Pensions Regulator are actively working together to ensure consistency and minimise duplication, and to undertake joint investigations where appropriate," he said. "This is all good news."

"The FCA and the Pensions Regulator openly recognise that there should be consistency in how contract-based and trust-based DC schemes are treated. The new guide openly acknowledges that some employers faced with choosing a pension scheme for their staff may not even know whether it is contract-based or trust-based – all the more reason for the FCA and the Pensions Regulator to present a united front," he said.

Trust-based occupational schemes are established under trust and administered by individual trustees or a corporate trustee with a general duty to act and exercise powers in the best interests of scheme members. Contract-based pensions, such as work-based personal pension schemes, are based on a contract between each individual member and the product provider. According to the guidance document, each type of scheme is equally capable of delivering good outcomes for scheme members.

Although both the Pensions Regulator and the FCA have similar expectations for scheme quality and member outcomes, their regulatory focuses are slightly different. The Pensions Regulator focuses on the conduct of the trustees of trust-based schemes while the FCA, which oversees financial services firms across a number of subsectors, works to ensure firms that provide contract-based schemes treat their customers fairly.

According to the guide, the regulators are aware of the need to discourage regulatory arbitrage. This would occur where the regulatory framework for one type of scheme was demonstrably different to the other, allowing employers or providers to take advantage of the differences in a way that led to potential scheme member detriment. The regulators and the government "actively work together" to ensure that they identify any potential for regulatory arbitrage, manage it effectively and mitigate it if possible, according to the guide.

The FCA and the Pensions Regulator have a memorandum of understanding in place which sets out at a high level how they work together, according to the guide. It lists a number of practical ways in which they work both together and with other interested parties including sharing, assessing and monitoring risks and identifying potential opportunities for joint working. Given that the FCA regulates firms while the Pensions Regulator's remit is more about the schemes themselves, the regulators will take the lead on different kinds of activity if a joint investigation is needed. The Pensions Regulator is more likely to take the lead where there are problems with an individual scheme and the FCA more likely to do so where the issue is caused by the pension provider, according to the guide.

"Retirement savers have a right to expect that their workplace pension scheme, whether it is trust- or contract-based, is well-run and will deliver a good outcome," said Andrew Warwick-Thompson, the Pensions Regulator's executive director for DC governance and administration. "I can see no reason in principle why trust- or contract-based schemes should deliver different outcomes. However, joined-up regulation is essential to build equal confidence in both types of scheme."

FCA policy director Christopher Woolard added that the introduction of automatic enrolment meant that more people than ever would be enrolled into DC schemes making a "consistent approach" between the two regulators even more important. The vast majority of the between five and eight million people that are estimated to begin saving more towards their retirement or saving for the first time under the programme will be enrolled onto DC schemes, selected by employers that may not compare the different types of scheme against each other.

The Department for Work and Pensions (DWP) is currently developing a series of minimum quality standards for DC schemes, regardless of whether they are trust-based or contract based. The DWP intends to set minimum requirements for scheme governance, investment fund design and administration and member protection.

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