The Pensions Regulator

The Pensions Regulator publishes its medium term strategy

Ref: PN06-14
28 April 2006

The Pensions Regulator today published its medium term strategy setting out its strategic priorities for the next three years.

The regulator makes clear that it will continue to take a risk-based approach to the regulation of pension schemes and that this will continue to inform all of its activities. The Pensions Regulator's medium term strategy defines its key strategic challenges for the next three years as:

• strengthening the funding of defined benefit schemes;
• improving the governance of work-based pension schemes; and
• reducing the risks to members of defined contribution pension schemes

The Pensions Regulator's chief executive Tony Hobman said: "In its first year, the Pensions Regulator's achievements have included the establishment of a new clearance process for corporate transactions involving employers with defined benefit schemes, issuing statutory codes of practice giving practical guidelines, developing a regulatory framework for the funding of DB schemes and developing an organisational and regulatory approach which is proactive, risk-based and flexible.

"While the regulator will continue to undertake business planning each year, the medium term strategy is intended to provide the wider context of a medium-term strategic overview. As well as allowing the reader to understand our overall approach and priorities for the next three years, it should also provide greater clarity on why the regulator is taking a stance on a particular issue."

Scheme funding

The regulator's aim is to ensure that trustees, employers and their advisers develop a sound understanding of the way they should set and agree the statutory funding objective and any recovery plan. Intervention will be prompted by concerns that the technical provisions are set too low or the duration of the recovery plan is too long, thereby creating a risk to members' benefits and to the Pensions Protection Fund (PPF). The regulator's statement on how it will regulate scheme funding will provide a clear indication of when it will consider intervening.

Scheme governance

The Regulator is currently focusing on helping trustees to improve their knowledge and understanding. The emphasis is on education and support through codes of practice and guidance, e-learning through http://www.trusteetoolkit.com/, and the trustee knowledge and understanding scope guidance. During the next three years the main thrust will be on helping the regulated community understand what is expected of them. In the longer term we will work to improve the transparency of trustees' accountability to members.

DC Risks

The risks in relation to defined-contribution schemes are more diverse than for defined- benefit schemes and require a different regulatory response. Early focus will be on identifying and prioritising the key risks and helping the pensions community to understand what is expected of them.

The risk-based approach

Consistent with its aim of being proportionate and cost-effective, the regulator will take a risk-based approach to priorities, focusing interventions more intensively on those schemes with more than 1,000 members.

This reflects the fact that 85 per cent of members are contained within just two per cent of schemes and is aligned with a realistic assessment of our capacity.

However, regulating schemes at different levels of intensity does not mean overlooking issues which relate to smaller schemes - all schemes will have access to codes of practice, guidance and free-e-learning, and the risk-based model allows for interventions in relation to small schemes, for example where a number of concerns have been raised about a particular scheme.

Key performance indicators

The regulator has defined its key performance indicators for the next three years:

• DB schemes will have completed scheme specific funding valuations and those with deficits will have agreed recovery plans.
• There will be evidence of year-on-year improvement in trustee knowledge and understanding of the governance requirements for their schemes.
• Trustees and others involved in running DC schemes have a clear understanding of the significant risks inherent in such arrangements, especially in relation to administration, member awareness and investment, and how they should be mitigating them.

The Pensions Regulator will continue to work in close cooperation with the Department for Work and Pensions (DWP) and the PPF, and has agreed a tripartite Memorandum of Understanding which sets out the responsibilities of each organisation and the information flows between them.

To view the medium term strategy visit:
www.thepensionsregulator.gov.uk
/pdf/mediumTermStrategy.pdf

Editor's notes

• The Pensions Regulator is the regulator of work-based pensions in the UK, with wider and more flexible powers under the Pensions Act 2004. It replaced Opra which no longer exists.
• The powers of the Pensions Regulator include the ability to:
  • collect more detailed scheme information;
  • issue improvement notices and third party notices, enabling the regulator to ensure problems are put right;
  • freeze a scheme that is at risk, while the regulator investigates; and
  • prohibit trustees who are judged not fit and proper to carry out their duties.
  • The Pensions Act 2004 also imposes a statutory obligation on 'whistleblowers' to report suspected breaches of the legislation to the regulator.