Pensions - Articles - Rising cost in pension regulation sparks concern

Research from the Pensions Management Institute’s (PMI) latest PMI Pulse survey reveals that there is concern across the pensions industry around the increasing costs of regulation. Over one third (34%) of pension professionals said they think that the cost of regulation is now too high with 39% of respondents thinking that the cost of regulation is about right. Increasing expenditure of the Department for Work and Pensions’ arm’s length bodies has increased, in turn leading to levy issues, which has led to calls for more transparency over appropriate funding models.

 The Pension Protection Fund has of course recently consulted on the levy but in the PMI’s research, respondents felt that the most appropriate model for funding regulation was a levy based on funds under management (39%), followed by a per member levy (21%), and then by arrangement type (14%).

 Over half (55%) of respondents are dissatisfied with the direction of pension policy thus far and looking into 2020, almost one third (31%) of respondents do not expect the Pensions Regulator (TPR) to focus on the ‘right areas’ over the next six months. However, one third (35%) of respondents are optimistic about the direction of pension policy over the next six months. Now the new Government is in place and once there is more clarity over Brexit, business as usual should hopefully recommence.

 Industry professionals also cited concerns around direct intervention from the Pensions Minister particularly on ESG issues. Guy Opperman’s recent letter at the end of 2019 to the 50 largest pension schemes was met with trepidation by a proportion of respondents. Over one third (37%) thought that the letter set a ‘worrying precedent’ for schemes, given they are likely to have incurred additional costs in meeting the request. However, 26% of respondents welcomed the development and 15% thought it acceptable in this case only.

 Lesley Carline, President, Pensions Management Institute, commented: “While we of course welcome appropriate regulation and an increased focus on ESG across our sector, we need to bear in mind the extra costs this might bear on pension schemes. The protection of scheme members’ funds should remain the top priority and obstacles to achieving positive member outcomes should be thoroughly examined.

 “It is imperative that we see increased transparency around any regulatory costs that may negatively impact the costs of levies for schemes and leave them out of pocket.

 “It’s important that all schemes consider integrating ESG principles into their investment portfolio, although we again recommend that targets are achievable, particularly for smaller schemes with less financial clout.”

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