TPR and FCA strategy update: “We will continue to work…closely…as we carry out these joint workstreams”

On 7 December 2022, the Pensions Regulator (“TPR”) and the Financial Conduct Authority (“FCA”) published a high-level strategy update on their work to regulate the pensions and retirement income sector. The update comes four years after the organisations’ 2018 joint regulatory strategy and follows significant changes to the pensions saving landscape caused by COVID-19 and the ongoing cost of living crisis. The update, as expanded below, explains how the organisations have cooperated to protect pension savers throughout this period. It also sets out the organisations’ plan to work together to enhance and protect savers’ pensions moving forward.

With eight ongoing joint workstreams identified, key areas include:

• Further development of a value for money framework for defined contribution pensions;
• Work to assess the stewardship regulatory framework; and
• Supporting the pensions dashboards initiative.

Who should read this update?

This update will be of interest to all those working in the pensions industry, whether an occupational pension scheme or a provider of a personal pensions, along with their advisers.

What progress has been made to date?

The 2018 joint regulatory strategy aimed to address the overarching harm of people not having adequate income, or the income they expected, in retirement. It proposed to tackle this issue through four joint areas of focus between TPR and the FCA:

• access and participation;
• funding and investments;
• governance and administration; and
• consumer understanding and decision-making.

Some key achievements from these areas of focus are highlighted in the strategy update as summarised below.

Access and participation

The update notes the organisations’ combined efforts to help savers maximise their pension savings and that pension saving has become “the norm” with 10.7 million eligible jobholders automatically enrolled into pension schemes. Separately, TPR highlights its efforts to educate employers on their automatic-enrolment duties in addition to increased enforcement of penalties for non-compliance. This was a particular theme during the pandemic when the instances of employer breaches with automatic enrolment legislation significantly increased.

Funding and investments

TPR states that their joint focus is on “delivering long-term value”. However, it recognises that there is “more work to do” to help savers grow their retirement savings and make better investment choices. In September, soaring gilt yields caused chaos for schemes using Liability Driven Investments (“LDI”) and TPR addresses this issue directly. TPR explains that it and the FCA will continue to work with partners to ensure market participants understand the risks of LDI and adopt an “appropriate level of resilience in LDI arrangements”. Furthermore, TPR confirms its plans to finalise the revised Defined Benefit (“DB”) Funding Code, which was subsequently published in draft at the end of 2022.

Governance and administration

TPR suggests that its role overseeing the authorisation of master trusts has placed more members in schemes with good governance and administration, noting that the occupational defined contribution (“DC”) market has reduced by 60%. Separately, the FCA has extended the Senior Managers and Certification Regime to increase the accountability and competence of insurers and solo-regulated firms.

Consumer understanding and decision-making

Since the 2018 joint regulatory strategy was published, the FCA and TPR have made significant efforts to protect savers from harm, particularly those transferring out of DB schemes. They highlight a range of these initiatives, such as:

• investment in the ScamSmart campaign to encourage savers to check who they are dealing with;
• the industry-focussed pledge to combat pension scams; and
• providing trustees and administrators with a “CETV letter” which informs members considering a transfer out of a DB scheme about the risks of transferring and the importance of guidance and advice before making a decision.

A further protection highlighted is the 2019 protocol which defines the working relationship between TPR, the FCA, the Money and Pensions Service (“MaPS”) and the Pension Protection Fund (“PPF”). The protocol tackles the risk of savers in DB schemes receiving unsuitable advice about transferring out of such schemes. This followed the events of the British Steel Pension Scheme (“BSPS”) where “nearly 8,000 steelworkers… lost an average of £82,600” after transferring out of the scheme, with many of the transfers being blamed on the receipt of unsuitable financial advice, the fallout from which continues. The protocol facilitates information and intelligence sharing between the organisations so that the risk of unsuitable advice on DB transfers can be considered and escalated to the Pension Savers Steering Group for intervention if necessary.

Regarding consumers, the update states that one of the key aims of their joint work is to enable good decisions by savers by ensuring they are better informed and more engaged with their pensions through a number of means such as:

• the introduction of a stronger nudge to Pension Wise guidance to enable better saver decision-making when accessing pension savings; and
• TPR and FCA involvement as two of the key delivery partners for the pensions dashboard project.

Ongoing joint workstreams

The update confirms that these four existing joint areas of focus “remain valid” and future developments include sharing responsibility for eight ongoing workstreams which aim to address any overarching harm to pension savers as well as these four areas of focus. What follows are the key elements of these workstreams:

• Productive finance (long term value) – ensure savers’ money is invested appropriately and remove barriers to DC schemes investing in less liquid assets long-term;
• Value for money – ensure savers receive good value for money and are invested in well performing schemes, including developing a consistent framework for assessing value for money with the DWP, initially across DC schemes;
• Regulatory framework and effective stewardship – ensure savers’ money is responsibly managed to promote sustainable long-term value, including working with the Financial Reporting Council and the DWP to assess the stewardship regulatory framework, the Stewardship Code and the need for further regulation;
• Pension scams strategy – ensure savers are protected from scammers by pursuing criminals through any available means, developing better use of intelligence to improve identification and tracking of fraudulent activity, and increasing consumer awareness through the ScamSmart campaign;
• DB transfer advice – ensure savers receive suitable advice consistently and, where harm has been caused, receive an appropriate remedy through regular data collection and ongoing supervisory work, including closer work with other regulators, for instance through the Pension Scams Action Group;
• DB schemes and transfer activity – ensure savers get the money promised to them by working with the PPF and MaPs to identify DB schemes at risk of transfer activity and alerting consumers and financial advisers that may target members of such schemes;
• Pensions dashboards – ensure savers are better informed to interact with their pension savings and ensure schemes meet their duties; and
• Supporting consumer decision-making throughout the pensions consumer journey – ensure savers receive the right guidance and advice by working with the DWP to consider how to further support savers, and working with the FCA in relation to its new consumer duty (which will raise the expected standard of care for firms).

TPR and FCA state that they will continue to work closely with industry partners and stakeholders to help deliver good outcomes for savers. Moving forward, TPR divides its ongoing work with the FCA into three parts:

• joint assessment of risks and harms (such as tackling pension scams through the Pensions Scams Action Group);
• joint work on cross sector initiatives (such as supporting the pensions dashboard and work with the DWP developing a framework for assessing value for money); and
• communications around joint work (such as communications around DB transfer concerns).

Takeaways

The strategy update highlights the wide-ranging initiatives TPR and FCA have brought about to protect savers since the 2018 joint regulatory strategy. Many of these initiatives require trustee engagement, such as trustees of DB schemes sharing CETV letters with members that are considering a transfer out, or trustees pledging to combat pension scams.

Future developments that the industry should keep an eye on in this area in 2023 include:

• the DWP’s planned consultation, alongside the FCA and TPR, on proposed changes to Value for Money obligations across DC schemes, announced as part of the Government’s Edinburgh reforms;
• whether any changes will be made to the Stewardship Code. TPR and FCA have confirmed that they will be working alongside the Financial Reporting Council and the DWP to assess the existing regulatory framework, whether the Stewardship Code is meeting its objectives of creating a market for effective stewardship, or if further regulation is needed; and
• whether any changes will be made to support savers throughout the accumulation (saving) and decumulation (spending) phases of their pensions journey. The introduction of the FCA’s new consumer duty will require FCA regulated firms to deliver good outcomes for consumers. However, TPR is keen to work with the DWP to consider how to tie any work done by the FCA in this area to provide further support to savers in the occupational pension scheme arena. A key area of focus will be to provide further clarity regarding the extent to which trustees, regulated firms and others can provide information and guidance to pension scheme members and prospective members without straying into the provision of regulated advice.

In short, in this update TPR and FCA celebrate the closer working relationship they have been fostering and the successes it has brought, whilst indicating that they will continue to work closely together in a number of areas.

This update was written by William Noble and Heather Musk. We are well placed to advise pension schemes of all sizes on all pensions issues. If you would like to explore this topic further, please contact Alice Honeywill or your usual member of our pensions team.