The articles and letters on pension fund regulation in the FT in the last few days, together, point out the imperfections of the current pensions regulation system in protecting the interests of millions of members of pension schemes.

The retiring chief executive of The Pensions Regulator (TPR) argued in Jo Cumbo’s article for enhanced powers (“Pension watchdog warns ‘weak’ companies to cut back on dividends”, March 6).

It is probable, however, that it is those very powers that are doing the damage to members’ expectations. There is no evidence that outcomes for members would be improved by awarding high levels of sanction against trustees or sponsors. TPR has had powers for many years untrammelled by the needs of good governance implied by conventional constitutional checks and balances, and it is clear that regulatory overheads have simply added to the costs of honestly managed schemes.

Meanwhile, TPR (not being a police force) is unable to prevent criminals profiting from substantial thefts arising out of the pension freedoms. TPR’s more recent call for “professionalisation” of trustees is simply one more example of the pressure to add to the layers of unnecessary and expensive bureaucracy with little discernible benefit to members. In particular, members are now suffering (as Ms Cumbo’s later article explained) from the unintended consequences of encouraging schemes to invest inappropriately. This is not TPR’s fault — it is merely because there is an asymmetry of benefit to any regulator where the cost of safety is not its concern and the reduction in benefit for members is not measurable.

The eight-fold rise in TPR’s internal costs (and possibly 10 times that for employers) over the past decade coupled with the lack of any external independently validated evidence of benefits of regulation to members raise the question of whether these costs are worth it. By way of comparison, ministry of justice costs have almost halved in that time.

The inevitable pressure for a regulator to pursue its own interests rather than those of scheme members is having an increasingly malign impact.

The many thousands of pages of rules, codes and guidance, the additional reporting requirements, the populist pressure to grandstand rather than actually protect members, the lack of proper checks and balances on the powers of TPR, the rising costs and the on-costs, and the lack of evidence-based rulemaking and review, all indicate that it may be time for an external review of the purpose and cost-effectiveness of TPR, bearing in mind that members would almost certainly continue to be better protected simply by the already well-established system of trustees and their advisers and the normal criminal, tort, contractual and fiduciary legal protections. In regulation, less might well be more.

Robin Ellison
Visiting Professor in Pensions Law and Practice, Cass Business School
London NW3, UK

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