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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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slide1

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

BUT …

  • 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

BUT …

  • 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)

7.0

6.0

5.0

Prediction >>

4.0

3.0

2.0

1.0

0.0

1979

1983

1987

1991

1995

2000

2004

2008

2012

2016

DB membership

DC membership

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

20

15

Membership in millions

10

5

0

1995

2000

2004

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

ActiveIntervention

High priority

Medium priority

Risk

Low priority

Bobby on The Beat (Proactive Monitoring)

Educate & Support

(Very Light Touch)

Minimal scheme specific action

Proactive Monitoring

Size

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
slide23
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