The changing pensions landscape, with the introduction of automatic enrolment, new proposals on quality standards, automatic transfers and decumulation, has resulted in the Pensions Regulator (tPR) having an increasingly complex role and undertaking a wider scope of work. As a consequence, tPR has published a new three year Corporate Plan setting out its priorities, which focuses on the regulation of risk in meeting its statutory objectives. There is also the new statutory objective, in relation to defined benefit (DB) funding only, to minimise any adverse impact on the sustainable growth of an employer.
The Corporate Plan’s four main sections
The Corporate Plan is divided into four main sections. Firstly, tPR’s regulatory approach whereby it focuses its resources in those areas where they are likely to have the greatest impact and to use enforcement action to educate and enable those with responsibility for pensions.
Secondly, tPR evaluates and assesses the current issues and risks facing the pensions world. It is recognised that almost 74% of the assets in private pensions are currently held within DB schemes, and it is envisaged that there will be an increase of between 6-9 million people newly saving into pension schemes following automatic enrolment (most of these are likely to be in defined contribution (DC) schemes). Ensuring that members and trustees understand and manage these risks is paramount to tPR’s strategy, with a specific focus on the respect of governance and administration standards in smaller DC and DB schemes. In relation to DB schemes, tPR is keen to address the risks relating to under-funding, ensuring the schemes are affordable for employer sponsors and tackling the release of funds through pension liberation or any other misuse of funds. In respect of automatic enrolment, tPR aim to ensure that employers meet their staging date and do not make late payments, with a specific focus on the country’s medium, small and micro employers.
Thirdly, tPR has published four corporate priorities which will guide its strategy between 2014 and 2017. The interim chief executive of tPR, Stephen Soper, said that “to help us to achieve our aims, we will be focusing on overarching corporate priorities, rather than rigidly adhering to a silo-based approach with our individual lines of business”, these being:
- To promote good governance and administration of work-based pension schemes:
The standard of governance and administration in some schemes is considered by tPR to be inadequate and need to be improved. For DB schemes this will involve encouraging those responsible to consider the strength of the employer covenant, funding plans and investment strategy. In relation to DC schemes this will mean promoting the key principles in the DC regulatory strategy, code of practice and guidance for good governance and administration.
- To promote security and good outcomes for members of work-based pensions:
Risk indicators will be used in relation to DB schemes to help tPR assess risk and it will also use annual indicators to establish guidance in respect of the risks facing schemes with effective valuation dates that year. For DC schemes, tPR will improve its practical guidance and will develop the voluntary assurance framework for master trusts. Pension liberation is a major concern for tPR and a priority will be to increase awareness of pension scams and pension liberation amongst those who govern schemes.
- To promote employer compliance with their pension responsibilities:
This priority is especially important in relation to helping employers to meet their automatic enrolment duties and to ensure that they are well-informed and receive comprehensive advice when choosing their products.
- To improve our organisational efficiency and effectiveness:
To ensure that the corporate priorities and statutory objectives are met, tPR will aim to be more efficient and effective. This will involve adopting new policies; reviewing its operation model; looking closely at performance management; corporate planning more effectively; and upgrading its IT systems.
Finally, the corporate strategy sets out tPR’s business plan for the year ahead. This includes assumptions of its workload and how it will monitor its performance to evaluate its performance for schemes, individuals and employers. To give an idea of the size of tPR as an undertaking and the resources which it will use to meet its objectives, its funding is derived from two sources, the levy budget from the Department for Work and Pensions (set at £37.4 million for 2014 - 2015) and the enrolment budget from general taxation (which is £40.4 million for 2014 - 2015).
tPR’s focus on key areas of risk and improving administration and governance across the board, especially in relation to smaller companies in meeting their automatic enrolment liabilities, is positive and goes some way to ensuring that members’ pensions meet their expectations in the future. The rigid plan for reviews of scheme management and the increased scale of resources and budget available to tPR does, however, suggest that trustees and sponsoring employers will need to be even more aware of possible enforcement action.