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“Both the Financial Conduct Authority and The …

Page 1 of 2 PRESS RELEASE EMBARGOED UNTIL 0900 HRS THURSDAY 22 OCTOBER 2015 PPI PENSIONS POLICY INSTITUTE Both the Financial Conduct Authority and The Pensions Regulator have strengths that could helpfully inform approaches taken by the other regulator The Pensions Policy Institute (PPI) is today publishing Comparison of the regulatory frameworks for DC Pensions, a report sponsored by Scottish Widows. This new research comes at a time of increased challenges for both regulators, with automatic enrolment meaning that a greater number of employers are offering pensions to their employees, and the new pension flexibilities have brought about increased possibilities for pension scams.

EMBARGOED UNTIL 0900HRS THURSDAY 22 OCTOBER 2015 1 PENSIONS POLICY INSTITUTE Executive Summary The implementation of automatic enrolment and the introduction of new ...

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1 Page 1 of 2 PRESS RELEASE EMBARGOED UNTIL 0900 HRS THURSDAY 22 OCTOBER 2015 PPI PENSIONS POLICY INSTITUTE Both the Financial Conduct Authority and The Pensions Regulator have strengths that could helpfully inform approaches taken by the other regulator The Pensions Policy Institute (PPI) is today publishing Comparison of the regulatory frameworks for DC Pensions, a report sponsored by Scottish Widows. This new research comes at a time of increased challenges for both regulators, with automatic enrolment meaning that a greater number of employers are offering pensions to their employees, and the new pension flexibilities have brought about increased possibilities for pension scams.

2 The differences between the regulators approaches reflect the different legal frameworks and underpinnings of contract and trust-based pensions. The research finds that The pension Regulator s strengths lie in its pragmatic approach that make it relatively easy for trustees to comply with the regulations and the leeway that it allows pension schemes in terms of communication with members. However, there are concerns around the lack of conditions to entry and active supervision for trust-based pensions. TPR also has no remit to protect the integrity of the market. However, the charge cap, new governance regulations and the introduction of the Master Trust Assurance Framework represent a move towards a more stringent approach for trust-based pensions The Financial Conduct Authority (FCA) approach, including the authorisation and supervision of entities, leads to a more rigorous framework overall because it is designed to prevent negative events, while the trust-based regime addresses these after the event.

3 However, FCA s prescriptive approach to member communications may not be as appropriate for workplace pensions, where the member is typically not able to choose to change pension scheme. In both regimes, there are concerns that a lack of transparency may lead to worse outcomes for some pension savers. Melissa Echalier, PPI Senior Policy Researcher said: Comparison of the regulatory regimes is difficult as they reflect different models of pension of provision that have developed over many years. However, the implementation of automatic enrolment in which trust and contract-based pensions have been used for similar groups brings into contrast the two regulatory regimes and it is clear that they both have strengths that could helpfully be used by the other regulator.

4 ENDS Page 2 of 2 PRESS RELEASE EMBARGOED UNTIL 0900 HRS THURSDAY 22 OCTOBER 2015 PPI PENSIONS POLICY INSTITUTE For further information please contact - Melissa Echalier, Senior Policy Researcher, PPI: 020 7848 4245 or email: Kevin Brown, Scottish Widows, 0131 544 5369/ 07500 910 904, Kimberley Hamilton, Scottish Widows, 0131 554 5450/ 07557 257 298, Martin Campbell, Beacon Strategic Communications: 07802 634695, email: Notes for editors 1. The Pensions Policy Institute (PPI) is an educational research charity, which provides non-political, independent comment and analysis on policy on pensions and retirement income provision in the UK.

5 Its aim is to improve the information and understanding about pensions policy and retirement income provision through research and analysis, discussion and publication. Further information on the PPI is available on our 2. Scottish Widows was founded in 1815 as Scotland s first mutual life office and is one of the most recognised brands in the life, pensions and investment industry in the UK. 3. The research is based on desk research and 13 interviews, conducted in August and September 2015, with industry experts, including pension providers, legal experts, advisers and employer s organisations.

6 EMBARGOED UNTIL 0900 HRS THURSDAY 22 OCTOBER 2015 1 PENSIONS POLICY INSTITUTE Executive Summary The implementation of automatic enrolment and the introduction of new pension flexibilities have meant an increased role for regulators to ensure that new policies work to the benefit of pension savers. At the same time, the challenges for regulators have increased. For example, automatic enrolment means that a greater number and wider range of employers are offering pensions to their employees, and the new pension flexibilities have brought about increased possibilities for pension scams.

7 In order to address some of these concerns, Scottish Widows commissioned research to explore the advantages and disadvantages of the two main regulatory regimes for pension saving. This research provides an independent assessment of the Financial Conduct Authority (FCA) and the trust-based regime for pensions, implemented by The Pensions Regulator (TPR), in terms of supporting good member outcomes in retirement. The PPI conducted 13 interviews with representatives from different organisations, including pension providers, legal experts, advisers and employers organisations, around the effectiveness of the respective regulators.

8 This report draws on discussions with these interviews as well as desk research. Particular aspects of workplace pensions mean that there is a need for regulation Complexity of pension arrangements, the need for specialist management and the fact that outcomes may not be apparent for some years mean that it is difficult for members to assess whether they are receiving value for This results in the need for external regulators to ensure that members are treated fairly and have access to strategies that best suit their needs. Broadly, trust-based Defined Contribution (DC) pensions are regulated by TPR and contract-based DC pensions are regulated by the FCA TPR regulates workplace trust-based pension schemes.

9 The activities regulated include administration and employers duties, trust and trustee The FCA regulates the firms and individuals that promote, arrange or provide contract-based schemes, including Group Personal pension schemes (GPPs) used in workplaces. Bodies regulated by the FCA in relation to pensions can include Financial advisers and investment/asset pension trustees are also subject to trust law that applies to areas such as investment powers, while contract-based pensions are subject to contract law that covers areas such as disclosure and fairness. The regulators, in turn, reflect these laws.

10 1 Office of Fair Trading (2013) 2 House of Commons library (2014) 3 House of Commons library (2014) EMBARGOED UNTIL 0900 HRS THURSDAY 22 OCTOBER 2015 2 PENSIONS POLICY INSTITUTE Large Financial service organisations, such as insurers, are jointly regulated by the FCA (for Conduct ) and the Prudential Regulation Authority (for solvency). While the FCA makes rules for Financial services providers and reports to Her Majesty s Treasury (HMT), TPR s role is to regulate according to the rules put in place by the Department for Work and Pensions (DWP). DWP and Her Majesty s Revenue and Customs (HMRC) are responsible for putting in place rules around registration conditions for schemes.


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