On 16 May 2019, the Department for Work and Pensions (DWP) published a periodic, government-conducted review which examines the continuing need, efficiency and good governance of the Pensions Regulator (TPR). This tailored review was conducted between August and November 2018 and led by Jamey Johnson, the former Chief Officer for Pension Wise (which is now part of the Money and Pensions Service).

One of the review’s principal conclusions is that TPR’s current form remains the most appropriate for its functions, and rejects the idea of merger with the Financial Conduct Authority (FCA). As the two bodies regulate markets with different fundamental purposes, the review concludes that it makes sense to continue regulating them separately. Similarly, the review rejects the idea of merger with the Pension Protection Fund and Pensions Ombudsman to form a single larger pensions body, which it says would not be feasible or produce meaningful benefits.

The review makes 16 specific recommendations, which relate to TPR’s form and functions, operational and organisational effectiveness, governance, relationship with the DWP, and preparations for Brexit. The DWP’s most significant recommendation is that consideration should be given to extending TPR’s powers to enable it to make its own rules in specific circumstances. Since changes to how TPR conducts its regulatory functions currently require changes to primary legislation, the review suggests that giving TPR its own rule-making ability could enable it to be a stronger and more proactive regulator. Such a reform would also put TPR on a similar footing to the FCA in terms of accessible powers. The review notes that, if this change were made, rules promulgated by TPR would need to be subject to both ministerial oversight and industry input.

On Brexit, the review suggests TPR could be doing more to support schemes in preparing for possible risks arising from the UK’s departure from the EU, and that TPR should actually take steps to enhance schemes’ preparedness for future uncertainty.

Comment

The recommendations that TPR should strengthen its information-sharing capabilities and be “proactively monitoring” its joint strategy with the FCA are to ensure it can better achieve its stated goal of becoming “clearer, quicker and tougher”. A further key recommendation included adding a board member with digital transformation experience.

However, the headline-grabbing proposal is the DWP’s suggestion that TPR could benefit from its own rule-making ability. The review proposes that TPR could then be able to respond more quickly to risks and changes in the pensions sector since, frequently “the regulations themselves cannot change at the same pace as the digital world”.

Some of TPR’s data requirements from schemes are specified in legislation, which means departmental and parliamentary time and cooperation is required to change them. The review states that a new rule-making ability would aid TPR’s strength as a regulator and potentially resolve public confusion over the extent of TPR’s powers. It suggests that the main benefits of this would be increased effectiveness, as TPR would be better able to respond to emerging risks. However, granting TPR rule-making powers would represent a dramatic change, and precise parameters would be needed. In addition, such a change could lead to a perception of a reduction in TPR’s government accountability and uncertainty for employers and trustees.

The review states that extending TPR’s powers would put the organisation on a similar footing to the FCA. In 2018, TPR was heavily criticised by two Parliamentary committees over its work on Carillion, with the group of MPs saying TPR made “hollow threats” and “failed in all its objectives“. We will be monitoring developments closely in the wake of the review.

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