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Pension regulation in the United Kingdom Tony Hobman Chief Executive, the Pensions Regulator Warsaw, September 2006. UK pensions: the landscape. The UK pensions landscape. Large numbers of occupational schemes circa 10,000 DB or hybrid schemes circa 74,000 DC schemes, most of which are small

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Pension regulation in the United KingdomTony HobmanChief Executive, the Pensions RegulatorWarsaw, September 2006

the uk pensions landscape
The UK pensions landscape
  • Large numbers of occupational schemes
      • circa 10,000 DB or hybrid schemes
      • circa 74,000 DC schemes, most of which are small


  • Most members belong to large schemes
      • over 85% of member records are in 1,600 large schemes
biggest proportion of members is in large db
Biggest proportion of members is in large DB …

17.3m private sector scheme member records in total

86.5% of member records are in large DB / hybrid

Source: The Pensions Regulator (Pension schemes in the UK, 2005)

but biggest proportion of schemes is small dc
… but biggest proportion of schemesis small DC

85% of schemes are small DC

84,600 ‘live’ occupational private sector schemes in total

Source: The Pensions Regulator (Pension schemes in the UK, 2005)

the uk pensions landscape1
The UK pensions landscape
  • The trend is from DB to DC
      • very few new schemes registered in the UK since January 2000 are DB
      • it is possible that by 2012 there will be equal numbers of active DB and DC members


  • DB membership (especially deferred and pensioners) will remain significant for many years to come
  • DB assets in UK are circa £700bn (over €1,000bn)
active dc membership is growing

Active membership in private sector occupational schemes (millions)




Prediction >>
















DB membership

DC membership

Active DC membership is growing…
but even with the shift to dc db will remain important



Membership in millions







DB active

DB deferred / pensioner

DC active

DC deferred / pensioner

… but even with the shift to DC, DB will remain important
what are the main risks to scheme members
What are the main risks to scheme members?
  • DB
      • underfunding
      • avoidance
  • DC
      • administration
      • members’ understanding
  • All schemes
      • trustee competence
      • investment
      • fraud
the new regulator
The new regulator
  • Before 2005: the old regulator (Opra)
      • emphasis on compliance
      • limited powers, reactive
  • New legislation in 2004
  • April 2005: the Pensions Regulator is created
      • risk-based
      • wider powers, proactive
      • Pension Protection Fund also created
a new regulator
A new regulator
  • Our objectives
      • protecting members’ pension benefits
      • raising standards
      • reducing risks to the Pension Protection Fund
  • Our approach
      • identifying risks
      • providing support, preventing problems
      • education and guidance
      • intervention when required
our regulatory powers
Our regulatory powers
  • Gathering information and identifying risks
      • the scheme return
      • ‘whistleblowing’ reports
      • ‘notifiable’ events
      • DB recovery plans
  • Preventing problems and putting things right
      • improvement notices / third party notices
      • recovering unpaid contributions
      • freezing orders
      • disqualifying trustees
our regulatory powers1
Our regulatory powers
  • Taking action against avoidance of, or insufficient support for, DB liabilities
      • contribution notices
      • financial support directions
      • issuing clearance for corporate transactions
main themes for 2005 2006
Main themes for 2005 – 2006
  • Developing a risk-based approach to regulation
  • Helping to support scheme funding
  • Working with the PPF to protect members from employer default
  • Working to raise standards: codes of practice, guidance, training materials
developing a risk based approach
Developing a risk-based approach
  • Categorising risks
      • level and nature of risk
      • number of members potentially impacted
  • Collecting data
      • environmental scanning
      • reports from and about individual schemes, intelligence
      • the scheme return
  • Appropriate use of resources
      • when is active intervention appropriate?
the risk and intervention model

Spotting a needle in a Haystack

(MI5 Intelligence)

Must win the War

(Active Intervention)

Intelligence based action


High priority

Medium priority


Low priority

Bobby on The Beat (Proactive Monitoring)

Educate & Support

(Very Light Touch)

Minimal scheme specific action

Proactive Monitoring


The risk and intervention model
supporting scheme funding
Supporting scheme funding
  • DB underfunding presents a potential risk to scheme members
  • Trustees and employers must develop prudent funding targets / recovery plans suitable for their schemes
  • We use risk-based filters to review recovery plans
  • Problems must be reported to us (e.g. failure to reach agreement)
clearance protecting scheme members
Clearance: protecting scheme members
  • Corporate activity has the potential to put members benefits at risk
  • We can take action if
      • there has been deliberate avoidance
      • a scheme is not properly supported
  • Optionally, companies can apply for clearance
raising standards
Raising standards
  • Codes of practice
      • help trustees, employers, advisers etc to understand their responsibilities
      • have evidential status
      • subjects include ‘whistleblowing’, funding, late payments
  • Other guidance, eg on cross-border schemes
  • ‘The trustee toolkit’
      • online learning for trustees
      • free, available to all
What next?

2006 and beyond

main themes
Main themes
  • Continuing to support the process of scheme funding
  • Improving standards of governance
  • Tackling risks to DC scheme members
getting a clearer picture
Getting a clearer picture
  • Policy must be based on
      • high-quality, up-to-date information
      • consultation with the regulated community
  • Governance survey
      • independent, anonymous
  • Key findings include:
      • smaller schemes more likely to need support
      • importance of training
      • need for risk management
      • need to manage conflicts of interest
in conclusion
In conclusion …
  • A new risk-based regulator
  • Emphasis on education and prevention
  • Stronger powers to
      • gather information
      • take action
      • set standards
  • DB funding a key focus: we are equally concerned with DC issues and governance overall