Joint watchdog strategy to include consumer journey review

The watchdogs announced their intention to launch the strategy earlier this year, before seeking input in March on regulating the pensions and retirement sector.

The joint strategy on pensions, published on Thursday, identifies four key issues that contribute to the prospect of individuals not having adequate income.

You reserve enforcement, which is an expensive and costly business, for the really serious issues of non-compliance

Lesley Titcomb, the Pensions Regulator

These include access and participation, funding and investments, governance and administration, and consumer understanding and decision-making.

It also outlines several ways in which the FCA and the Pensions Regulator will work together. Two new priority areas for joint action will be a strategic review of the entire consumer pensions journey, and using regulatory powers to drive value for money for members of pension schemes.

Regulators to review consumer journey

The watchdogs have already worked together on issues such as combatting pension scams, but the publication of the joint strategy marks a new stage in the evolution of their working relationship.

Lesley Titcomb, chief executive at the Pensions Regulator, stressed how important it is that the regulators work "in an even closer relationship" given the pace at which the pension landscape is evolving.

“We, the FCA and [the Pensions Regulator], have had to adapt to make sure we’re fit for purpose, and to make sure that members’ savings are protected in this evolving landscape,” Titcomb told the Pensions and Lifetime Savings Association's annual conference.

The review of consumer pensions journeys will look at how disclosures and information from providers and schemes combine with guidance and advice services to help consumers make well-informed decisions.

It will consider the content of communications, as well as the timing and method of delivery. The review will cover both trust and contract-based pensions through accumulation and decumulation.

Expect clearer standards on delivering value

Where relevant, the two regulators will also seek to set and enforce clear standards for delivering value for money.

In September, research by the Pensions Regulator revealed that small defined contribution schemes are not meeting the watchdog’s expectations when it comes to demonstrating value for members.

It found that the trustees of about one in 10 small schemes, and only a third of medium schemes, are doing everything that the Pensions Regulator believes is essential to assess value for members, including having good knowledge and understanding of costs and charges paid by members.

Earlier this year, a ShareAction report found that independent governance committees are failing to adequately report the value for money represented by their respective providers.

As part of the joint regulatory strategy, “we’ll be looking to develop a framework for assessing value for money across both trust and contract-based schemes, which trustees and IGCs can use to structure their value for money assessments”, said David Geale, director of policy at the FCA.

Will the regulators merge?

As the regulators work together, with plenty of overlap when it comes to pensions, the matter of whether the two watchdogs eventually merge is up to the government.

“It’s a question that does come up, but it’s really, in the end, a matter for government, not for us,” Titcomb told Pensions Expert.

“However you design any regulatory regime, particularly in financial services, there will always be boundaries that you have to determine,” she said.

“Regardless of what the politicians decide and where they draw the boundaries, there will be regulators and related organisations who have to work very closely together,” she said. “That’s why we and the FCA are focused on deepening our relationship and working together more effectively.”

Boost standards before enforcing

Titcomb emphasised that regulation is not solely about enforcement, particularly when it comes to standards-based regulation and value for money.

“It’s compliance through monitoring and driving up standards that you want to get,” Titcomb noted. “You reserve enforcement, which is an expensive and costly business, for the really serious issues of non-compliance – either because they’re so awful or because they’re repeated.”

The strategy launch was met by approval by pensions experts under both jurisdictions.

Nathan Long, senior analyst at Hargreaves Lansdown, welcomed the decision to conduct a review of the entire consumer pensions journey, noting that it “shows the regulators are really trying to address how we get people to make sensible decisions with their pensions”.

Long added: “Key areas to look at will be: how do we get people reviewing their pension more often, how do we help people boost the amount they pay in, [and] how can we help people to improve their investment returns.”

Dinesh Visavadia, director at Independent Trustee Services, said it will be helpful for the Pensions Regulator to draw upon the FCA’s experience and insight into consumer protection.

He emphasised the need for schemes to look at value for money in terms of good member outcomes – by looking at cost and whether members are getting the right information for them to make good decisions, for example.

Value for money “is still not clear in a lot of people’s minds, and we need to help them, and setting up some framework might not be a bad idea” to help with this, he added.