The government should reassess the case for establishing a single body with sole responsibility for regulating workplace pensions, according to a report by the Work and Pensions Committee.
Its report, Improving governance and best practice in workplace pensions, raises concerns over current gaps in regulation and the potential for further gaps to arise as a result of having three regulators: The Pensions Regulator, and the new Financial Conduct Authority and Prudential Regulation Authority, which were set up to replace the Financial Services Authority (FSA).
The report also recommends that:
- Deferred-member charges and member-borne consultancy charges are both banned by government.
- The government, regulators and the pensions industry should work together to agree a communications format that clearly sets out the basic, essential pieces of information that pension schemes should provide to their members.
- The government and the regulators should investigate ways of assisting all employers that offer contract-based pension schemes to set up governance committees to oversee their pension scheme.
- If the pot-follows-member model remains the government’s preferred option for solving the problem of small pension pots, it must ensure that all schemes used for auto-enrolment benefit from good governance and are free from high charges.
- The government should continue to explore ways to encourage employers’ appetite for defined ambition risk-sharing schemes. The necessary steps should be taken to remove legislative and regulatory barriers to defined ambition schemes by the time the single-tier state pension is introduced and contracting out ends in 2016.
Anne Begg, MP and chair of the Work and Pensions Select Committee, said: “Under auto-enrolment, millions of people will be brought into pension saving for the very first time. The need for rigorous pension scheme governance has never been more vital.
“It is essential that all members of workplace pension schemes are protected from poor governance, irrespective of the particular scheme they are in. We do not believe this is always the case under the current regulatory system and evidence from the regulators failed to convince us otherwise. On the contrary, we are concerned that current gaps in regulation will be exacerbated by the fact that we now have not two, but three regulators involved: The Pensions Regulator, and the new Financial Conduct Authority and Prudential Regulation Authority, set up to replace the FSA.
“The government should reassess the case for establishing one body with sole responsibility for regulating workplace pensions. This body must be invested with sufficient powers to ensure that all members of workplace pension schemes are given the level and consistency of protection they need.
“The plethora of costs and charges that can be applied to pension pots are not only confusing, they can seriously impact on an individual’s retirement income. We are particularly concerned about member-borne consultancy charges and those charges applied to deferred members: people who stop contributing to their pension scheme. Neither can be justified; both should be banned.
“The trend towards lower pension scheme charges is welcome. However, a good average is not sufficient and we remain concerned by the potential for consumer detriment in schemes that persist in retaining high charges. [The Pensions Regulator] should carry out an urgent review of these outliers and take action if it considers this necessary. The government should also regularly review its policy on capping charges for auto-enrolment schemes and must act without hesitation if it becomes apparent that some members are at risk of detriment.
“Consumers are also continuing to lose out when they buy annuities because pension providers are not doing enough to ensure people are aware that they can shop around for the best annuity rate, rather than being obliged to buy an annuity from their pension provider. We believe that it should be mandatory for pension providers automatically to supply their customers with a comprehensive breakdown of all the annuity rates available to them from different providers.
“The current poor standard of communications is a serious cause for concern and needs to be addressed. This is not a case of the more information the better. It is about providing only the information that is relevant to employers and employees, and presenting it as clearly and simply as possible, rather the current deluge of complicated documentation which pension scheme members currently receive.”