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Pensions regulatory overlap?

On 16 January the Department of Work and Pensions announced that Paul
Thornton, a previous president of the Institute of Actuaries and managing
director of Gazelle Corporate Finance, had been asked to carry out an
institutional review of all the organisations involved in the regulation and
protection of workplace pensions.

The idea was to see if the various institutions, including The Pensions
Regulator (TPR) and the Pension Protection Fund (PPF), two bodies explicitly
created by the 2004 Pensions Act, were still fit for purpose in the light of the
government’s new thinking about personal pension accounts and all things post
the Turner Commission’s report.

While Thornton’s brief includes the Financial Services Authority and things
like the Financial Services Compensation Fund (FSCF), the review has set the cat
among the pigeons, as far as TPR and the PPF are concerned.

Simple principle
To understand why, one has to remember that one important backdrop to Thornton’s
review is the Hampton principles. At the 2004 Budget, the government asked
Philip Hampton to consider “the scope for promoting more efficient approaches to
regulatory inspection and enforcement…”. Hampton seems to have taken this to
mean that, where possible, overlapping enforcement bodies should be reduced to a
single body, thus simplifying the regulatory landscape. Hampton is famous for
championing the notion of risk-based management for regulation, which means
focusing resources where there is the most risk of something going wrong.

While many would applaud the principle of cutting back on regulation, which
is what simplification often means, it overlooks one small point. Where you have
two regulatory bodies rather than one, this tends to be not because someone was
sloppy, but because someone, somewhere grasped that each body was performing a
different function and, further, that there was merit in keeping the two
functions separate.

Of course, after watching two such overlapping bodies at work for some time,
one might conclude that there was little point in keeping them separate after
all. Or one might not. In other words, the separation might vindicate itself, as
some separations of function tend to do, which is why we tend to value the
separation between judge, jury and executioner, so to speak.

All this makes a colourful backdrop to Thornton’s review, and it has not been
lost on the bodies concerned, all of which have made written submissions to
Thornton. Already there has been some press speculation that one outcome of this
consultation process could be a merger of TPR and PPF, with TPR taking over the
PPF’s functions. This possibility has not been lost on TPR, which has decided
that swelling its powers by having it ingest and digest the PPF may be no bad
thing, nor the PPF, which, like the proverbial turkey, is not about to vote for
Christmas and so is not in favour of being merged with TPR.

Frosty relations
One thing we can say with certainty is that whatever the relations were between
the PPF and TPR before Thornton, they are likely to be considerably chillier
once all this is over, assuming the review leaves both parties unscathed.

Interestingly, before we consider the highlights of the arguments put forward
by TPR and the PPF for change and for the status quo respectively, it has dawned
on at least one of the institutions under review that this is not the only
possible merger on the cards.

It is worth noting in passing that the Financial Services Authority, in its
submission, spends a lot of time emphasising the demarcation lines between its
function and that of TPR – just in case some politician starts thinking that a
really neat simplification would be to roll the PPF, TPR and the FSA all up into
one, single über-regulator.

TPR’s chief argument, though, stated in some detail in its submission, is
that separating the functions of TPR and the PPF doesn’t achieve much, creates
some boundary tensions and leaves the PPF under-resourced. In addition, having
two organisations makes matters inherently more complex for the DWP to manage,
it argues. It also points out that the customers of both organisations face
duplication of effort on occasion, with the same information having to be
provided “twice in different ways to meet each organisation’s requirements”.

The PPF, for its part, argues that the present system has not had long enough
to work for any review to make any sense. Things should be left as they are for
a few years, so that the PPF has a chance to demonstrate that it can protect
member benefits and operate the levy, it says. It reminds Thornton that it has
been entrusted by government to keep the scheme solvent and able to pay
benefits, year-in, year-out, with no backing from the public purse. This is a
key job and it should be left to get on with it.

Whether it will or not will depend, ultimately, on how enamoured the
politicians are with simplification.

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Philip Hammond