Pension regulation in the United Kingdom Tony Hobman Chief Executive, the Pensions Regulator Warsaw, September 2006

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Pension regulation in the United KingdomTony
HobmanChief Executive, the Pensions
RegulatorWarsaw, September 2006
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• UK pensions the landscape

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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

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Biggest proportion of members is in large DB
17.3m private sector scheme member records in
total
86.5 of member records are in large DB / hybrid
Source The Pensions Regulator (Pension schemes
in the UK, 2005)
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but biggest proportion of schemes is small DC
85 of schemes are small DC
84,600 live occupational private sector schemes
in total
Source The Pensions Regulator (Pension schemes
in the UK, 2005)
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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)

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Active DC membership is growing
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but even with the shift to DC, DB will remain
important
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• The risks

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What are the main risks to scheme members?

• DB
• underfunding
• avoidance
• DC
• administration
• members understanding
• All schemes
• trustee competence
• investment
• fraud

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• 2005 A new regulator

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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

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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

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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

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Our regulatory powers

• Taking action against avoidance of, or
  insufficient support for, DB liabilities
• contribution notices
• financial support directions
• issuing clearance for corporate transactions

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• Looking back our first year
• 2005 2006

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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

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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?

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The risk and intervention model

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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)

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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

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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

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• What next?
• 2006 and beyond

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Main themes

• Continuing to support the process of scheme
  funding
• Improving standards of governance
• Tackling risks to DC scheme members

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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

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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