The UK’s Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) have launched a joint regulatory strategy to address the fundamental changes that have altered the UK’s pension landscape in recent years.
The strategy, which outlines how the two regulators will collaborate,, drew on a call for input the regulators published in March that sought views from industry and consumer group representatives.
“Our goal is to ensure the people who run workplace pensions meet our expectations so that members can have confidence their savings are protected,” Lesley Titcomb, TPR’s chief executive, said in a release. “We are being clearer, quicker, and tougher in the pursuit of this goal and working collaboratively with the FCA is vital.”
The regulators have had to adjust to new challenges in recent years, such as the introduction of automatic enrollment, increased longevity, low personal savings, low interest rates, and the ongoing migration to defined contribution plans from defined benefit plans.
Among their concerns are data showing that few employers and employees are making more than the minimum pension contributions, which they say will only get worse with the rise of self-employment and the so-called “gig economy,” which is comprised of part-time workers.
FCA data suggests that the number of transfers out of defined benefit plans into defined contribution plans has tripled in the last year, and the regulators say unsuitable advice has had “particularly serious consequences” for consumers transferring out of defined benefit plans, “potentially resulting in lower retirement income and the risk of running out of money.”
The regulators also cited figures from the Office for National Statistics (ONS) showing that the UK household debt-income ratio rose to more than 130% of disposable income in mid-2017.
“Consumers struggling with low incomes and high levels of debt are likely to find it difficult to make sufficient pension savings,” said the FCA and TPR in their strategy paper.
ONS data also show that retirees in 2039 are expected to live an additional nine years for men and seven for women compared to those who retired in 1989. Because of this, many consumers are likely to have “seriously underestimated” how long their retirement income will have to last, and the cost of care in later life, say the FCA and TPR.
Although the regulators have worked together in the past, the strategy includes two new priority areas for joint action. The first is an in-depth look at what tools are needed to enable people to make better-informed decisions about their pensions. The second is using their powers to increase value for pension participants, including the setting and enforcement of standards and principles where relevant.
Among the planned joint initiatives outlined in the strategy, the two will conduct parallel supervision work on the governance and oversight of defined contribution default funds; collaborate to strengthen existing guidance for trustees on defined contribution investments; and work together on consulting the UK’s Department for Works and Pensions on improving trustee duties relating to environment, social, and governance (ESG) issues.
“But success in delivering this strategy doesn’t just depend on action by us,” Christopher Woolard, FCA’s executive director of strategy and competition, said in a release. “With the support and collaboration of the government, industry, and consumers themselves, we can deliver an environment which contributes to people having higher incomes in their retirement.”