The Pensions Regulator

How we choose the right regulatory approach

The Pensions Act 2004 provides the Pensions Regulator with a wide range of powers. As a proportionate, transparent, accountable and risk-based regulator, how do we choose the right regulatory approach for any given situation?

The Pensions Regulator has been given powers in legislation so that it can achieve its statutory objectives.

The board of the Pensions Regulator has set a number of high-level principles that guide its day-to-day regulatory work. These principles are that we should:

• take a proportionate approach to risk;
• use the approach that is most likely to improve the overall administration of schemes and protection of benefits, commensurate with achieving the desired outcome and managing the risks. We will always, as a high priority, offer advice, information, education to trustees, employers and scheme actuaries to help them to achieve sustained improvement in their performance;
• act in accordance with the principles of good regulation and the protection of human rights; and
• focus clearly on outcome to be achieved rather than on process.

As well as the Pensions Regulator, other parties have a role to play in protecting members' benefits - it is the pension scheme trustees' role to provide the first layer of protection, then advisers, providers and employers through to other regulators such as the Financial Services Authority and finally, when all other layers of protection have failed, the Pension Protection Fund or other compensation funds. See the 'regulatory ripple' diagram showing the layers of protection.

The Pensions Regulator uses its powers and influence proactively, to enable each of the parties to play an effective part in protecting benefits, and to ensure that they do all work towards the common objective.

What we need to consider

When we identify a possible problem with a scheme, we consider a series of questions.

• Does this situation indicate that there is a serious risk to members' benefits? If 'Yes', we need to take immediate action to safeguard those benefits. This sort of 'emergency' action is relatively rare but recognising the need for it, and taking the right steps, is vital.

  Here's an example

• Whether or not emergency action is required, the next question is - what caused the problem? There is a whole spectrum of possibilities here, ranging from an administrative failure caused by lack of knowledge, to a more sinister explanation such as fraud. And we also ask - who caused the problem?

  Here's an example

• In general terms, we will want to make sure that members' benefits are not depleted as a result of the problem, so we ask ourselves how we can best secure the remedy.

  Here's an example

• We also want to ensure that the cause of the problem is eliminated, so that the situation won't continue or recur later. We look to match our approach to the nature and source of the cause. The Pensions Regulator actively promotes high standards of administration, and provides practical guidance to trustees and administrators to enable them to achieve these standards. We always look to work with others - trustees, employers, actuaries etc - to improve their knowledge and advise them of their options, before embarking on a formal enforcement route.

  Here's an example

We are more likely to use our formal powers in circumstances where, for example, informal means such as education and advice given previously did not result in raised standards, or where the matter was so serious that informal means were not appropriate.

The regulatory ripple