Finding the right ratio of stick to carrot in pensions regulation

Any fundamental reordering of that list would imply prevention was losing ground to cure, so it was good to hear its chair Mark Boyle take the opportunity to re-emphasise its relevance and application in his first major industry speech last autumn.

Taking a risk-based view is also firmly enshrined in the regulator's strategic outlook. Allocating resources based on an assessment of risks to its statutory objectives is what any modern regulator should seek to do.

Acknowledging that its role “is not to address every issue or to eliminate all risks to work-based pension schemes” is a logical consequence of that approach and a rational use of the resources it has at its disposal.

That is all well and good, but it is a fact of life that policy frameworks change over time.

Wherever it believes it needs to alter the ratio of stick to carrot, it will also surely want to maintain its practice of signalling loud, clear and early that that is what it intends to do

The pace and scale of that change in the world of pensions, coupled with the evolution of the regulator's own understanding of the risks to members’ benefits, is bound to serve up a robust test of its determination to stick to its fundamental regulatory principles.

A notable feature of the pensions landscape is that significant amounts of risk are concentrated across relatively few, larger participants, with a long tail of smaller schemes – or employers in the case of auto-enrolment – accounting for the rest.

The regulator has already signalled its willingness to use its full suite of powers, where appropriate, to address wilful or persistent non-compliance among the large numbers of smaller employers now subject to auto-enrolment requirements.

As time goes on it will also have to decide the most proportionate and cost-effective approach to take as other areas of its oversight develop and mature.

For example, the standards of governance and administration set out in the latest defined contribution code are not intended to apply to larger schemes only; nor are the key funding requirements for schemes contained in last year’s defined benefit code.

Whatever the scope of its remit, it will undoubtedly want to continue to strike a sensible and proportionate balance between clarifying and facilitating good behaviour on one hand and enforcing it on the other.

Wherever it believes it needs to alter the ratio of stick to carrot, it will also surely want to maintain its practice of signalling loudly, clearly and early that that that is what it intends to do.

Tony Hobman is chair of the advisory board at Lincoln Pensions