Pension regulation in the United Kingdom Tony Hobman Chief Executive, the Pensions Regulator Warsaw,...
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Transcript of Pension regulation in the United Kingdom Tony Hobman Chief Executive, the Pensions Regulator Warsaw,...
Pension regulation in the United Kingdom
Tony Hobman
Chief Executive, the Pensions Regulator
Warsaw, September 2006
UK pensions: the landscape
The UK pensions landscape
•Large numbers of occupational schemes
– circa 10,000 DB or hybrid schemes
– circa 74,000 DC schemes, most of which are small
BUT …
•Most members belong to large schemes
– over 85% of member records are in 1,600 large schemes
Biggest proportion of members is in large DB …
0
5,000,000
10,000,000
15,000,000
20,000,000
2 - 999 members 1,000 + members
DB and hybrid
DC
Source: The Pensions Regulator (Pension schemes in the UK, 2005)
17.3m private sector scheme member records in total
86.5% of member records are in large DB / hybrid
… but biggest proportion of schemes is small DC
0
25,000
50,000
75,000
100,000
2 - 999 members 1,000 + members
DB and hybrid
DC
Source: The Pensions Regulator (Pension schemes in the UK, 2005)
84,600 ‘live’ occupational private sector schemes in total
85% of schemes are small DC
The UK pensions landscape
•The trend is from DB to DC
– very few new schemes registered in the UK since January 2000 are DB
– it is possible that by 2012 there will be equal numbers of active DB and DC members
BUT …
•DB membership (especially deferred and pensioners) will remain significant for many years to come
•DB assets in UK are circa £700bn (over €1,000bn)
Active DC membership is growing…
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
1979 1983 1987 1991 1995 2000 2004 2008 2012 2016
DB membership DC membership
Active membership in private sector occupational schemes (millions)
Prediction >>
… but even with the shift to DC, DB will remain important
0
5
10
15
20
1995 2000 2004
Me
mb
ers
hip
in m
illio
ns
DB active DB deferred / pensioner DC active DC deferred / pensioner
The risks
What are the main risks to scheme members?
•DB – underfunding
– avoidance
•DC– administration
– members’ understanding
•All schemes– trustee competence
– investment
– fraud
2005: A new regulator
The new regulator
•Before 2005: the old regulator (Opra)– emphasis on compliance
– limited powers, reactive
•New legislation in 2004
•April 2005: the Pensions Regulator is created– risk-based
– wider powers, proactive
– Pension Protection Fund also created
A new regulator
•Our objectives– protecting members’ pension benefits
– raising standards
– reducing risks to the Pension Protection Fund
•Our approach
– identifying risks
– providing support, preventing problems
– education and guidance
– intervention when required
Our regulatory powers
•Gathering information and identifying risks– the scheme return
– ‘whistleblowing’ reports
– ‘notifiable’ events
– DB recovery plans
•Preventing problems and putting things right
– improvement notices / third party notices
– recovering unpaid contributions
– freezing orders
– disqualifying trustees
Our regulatory powers
•Taking action against avoidance of, or insufficient support for, DB liabilities
– contribution notices
– financial support directions
– issuing clearance for corporate transactions
Looking back: our first year
2005 – 2006
Main themes for 2005 – 2006
•Developing a risk-based approach to regulation
•Helping to support scheme funding
•Working with the PPF to protect members from employer default
•Working to raise standards: codes of practice, guidance, training materials
Developing a risk-based approach
•Categorising risks
– level and nature of risk
– number of members potentially impacted
•Collecting data
– environmental scanning
– reports from and about individual schemes, intelligence
– the scheme return
•Appropriate use of resources
– when is active intervention appropriate?
The risk and intervention model
High priority
Medium priority
Low priority
Must win the War(Active Intervention)
Spotting a needle in a Haystack(MI5 Intelligence)
Bobby on The Beat (Proactive Monitoring) Educate & Support
(Very Light Touch)
ActiveIntervention
Intelligence based action
Proactive Monitoring
Minimal scheme specific action
Size
Risk
Supporting scheme funding
•DB underfunding presents a potential risk to scheme members
•Trustees and employers must develop prudent funding targets / recovery plans suitable for their schemes
•We use risk-based filters to review recovery plans
•Problems must be reported to us (e.g. failure to reach agreement)
Clearance: protecting scheme members
•Corporate activity has the potential to put members benefits at risk
•We can take action if
– there has been deliberate avoidance
– a scheme is not properly supported
•Optionally, companies can apply for clearance
Raising standards
•Codes of practice
– help trustees, employers, advisers etc to understand their responsibilities
– have evidential status
– subjects include ‘whistleblowing’, funding, late payments
•Other guidance, eg on cross-border schemes
•‘The trustee toolkit’
– online learning for trustees
– free, available to all
What next?
2006 and beyond
Main themes
•Continuing to support the process of scheme funding
•Improving standards of governance
•Tackling risks to DC scheme members
Getting a clearer picture
•Policy must be based on
– high-quality, up-to-date information
– consultation with the regulated community
•Governance survey– independent, anonymous
•Key findings include:– smaller schemes more likely to need support
– importance of training
– need for risk management
– need to manage conflicts of interest
In conclusion …
•A new risk-based regulator
•Emphasis on education and prevention
•Stronger powers to
– gather information
– take action
– set standards
•DB funding a key focus: we are equally concerned with DC issues and governance overall