The Pensions Regulator: One year on

Speaking at the Financial Adviser Expo in Harrogate today, June Mulroy, executive director of delivery, reviewed the Pensions Regulator's first year of operation.

In the presentation 'The Pensions Regulator - One year on', Mulroy outlined the progress made by the regulator since it came into being, in gathering information through scheme returns, notifiable events and whistleblowing reports while focusing on the risks to schemes, addressing defined benefit funding issues and acting against avoidance.

She said: "Information is vital to the regulator's work, as we can only improve the security of members' benefits if we have the data to identify potential risks. So far, more than 10,000 scheme returns have been issued; we have been handling up to 90 whistleblowing reports per calendar month and since April 2005 have dealt with 415 notifiable events."

Mulroy also considered the use of the regulator's powers, including being able to appoint trustees, suspend or prohibit individuals from trusteeship. She also explained the regulator's powers to issue improvement notices, third party notices and freezing orders to protect members' benefits and, in the most serious cases, to impose fines or prosecute in the criminal courts. However, the regulator's preferred approach is to work in partnership with schemes through discussion and negotiation and as such most intervention to date has been in the form of guidance and support.

Mulroy went on to highlight the introduction of the regulator's codes of practice. The Pensions Act 2004 required the regulator to produce a series of codes of practice, and developing these has been a major achievement in the first year. The codes give practical information about how schemes can comply with legislation and sets out the standards of conduct and practice expected.

Research has shown that trustee knowledge and understanding requirements remain an issue and that training, particularly in smaller schemes, is not always accessible. Mulroy explained that the regulator's e-learning facility, the Trustee Toolkit (www.trusteetoolkit.com), is being developed to address this. The free online training programme allows users to complete it at their own pace and in their own time, helping them to meet the standards set out in the new legislation.

At the heart of the regulator's work during the past year has been the move to scheme-specific funding and Mulroy took the opportunity to explain the aims for the future. She said: "The regulator will focus attention on those schemes whose members are most at risk through a failure to properly address funding issues. We intend to use two types of trigger, the level to which the technical provisions are set and the length of the recovery plan, to help filter out those schemes whose funding plans may merit a closer look."

Mulroy went on to explain how the clearance process has been working. Through this optional process, those considering corporate transactions involving companies where there is a pension scheme in deficit can gain reassurance that their actions will not subsequently be found to have fallen foul of legislation and will not prompt the use of the regulator's anti-avoidance powers.

She concluded by setting out the regulator's aims for the year ahead - to monitor the progress of scheme funding, address risks to defined contribution schemes and improve standards of governance.

1. The scheme return is an information gathering tool that collects occupational pension scheme information such as scheme status, type, membership and funding. Trustees are also required to provide details of their involvement in the scheme and to compile information on scheme advisers, administrators and employers.
2. Notifiable events give the Pensions Regulator early warning of possible calls on the Pension Protection Fund.
3. Whistleblowing reports are a key source of information used by the Pensions Regulator to fulfill its regulatory responsibilities for work-based pensions. The legal duty to report applies to those involved in running occupational and personal pension schemes, including stakeholder schemes, and covers breaches in certain circumstances of any legislation or rule of law concerning the administration of pension schemes.
4. An improvement notice or third party notice can be issued to individuals or companies requiring specific action to be taken within a certain time.
5. A freezing order temporarily halts all activity within a scheme, so that we can investigate concerns and encourage negotiations.
6. Codes covering: Notifiable events / Reporting breaches of legislation / Funding defined benefits / Late payments to occupational money purchase schemes / Late payments to personal pension schemes / Member nominated trustees & member nominated directors / Trustee knowledge and understanding / Early leavers (notifying members of rights) / Modification of past rights / Internal controls are available on the regulator's website.
7. To protect the benefits of scheme members, and to reduce the Pension Protection Fund's exposure to claims for compensation, we may use anti-avoidance powers which are:
   • Contribution notices. These allow us to direct that, where there is a deliberate attempt to avoid a statutory debt, those involved must pay an amount up to the full statutory debt either to the scheme or to the board of the Pension Protection Fund.
   • Financial support directions. These require financial support to be put in place for an under funded scheme where we conclude that the sponsoring employer is either a service company or is insufficiently resourced.
   • Restoration orders. If there has been a transaction at an undervalue involving the scheme's assets, these allow us to take action to have the assets (or their equivalent value) restored to the scheme.
8. June Mulroy and Laurie Edmans, a member of the board at the Pensions Regulator, will be speaking at further Financial Adviser events in Glasgow at the Scottish Exhibition and Conference Centre on 13 June and Olympia in London on 27 June. More information is available on http://www.financialadviserexpo.com/
9. The Pensions Regulator is the regulator of work-based pensions in the UK, with wide ranging and flexible powers under the Pensions Act 2004.
10. 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.

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