The volume of regulation and the cost of regulators has risen sharply over the past decade. Robin Ellison asks if it is time for a rethink.
Most of us need to live within a budget. The general exceptions are billionaires, asset managers and governments who can print money at negative interest rates.
In the pensions world there are two budgets in particular that we struggle with. One is the number of pages of regulation issued by legislators and regulators, and another is the financial cost of regulation.
Both are about to expand mightily. The pension schemes bill (which may die shortly, but might actually only be in a coma) is just shy of 200 pages, with another 150 pages of explanation, plus another hundred or so pages of dissembling impact assessments. And it contains reference to the greatest number of regulations ever to appear as a consequence of a single act, so we might expect another couple of hundred or so pages on top if the accompanying guide to delegated regulations is up to snuff.
That is a lot of legislation to digest, especially if we have spent some time understanding the Brexit act and the recent flood of consultative stuff from the Financial Conduct Authority (FCA), The Pensions Regulator (TPR) and Department for Work and Pensions (DWP) - all of which we need to administer, write software for and take advice on. Fortunately, this week at least, we have a Conservative government, whose chancellor, when he was business secretary in 2016, explained that government policy was for a regulatory budget of ‘one-in, three-out' - i.e. for every new page of law or regulation, three would be removed. Given the volume of regulation posted on the TPR website over the last 12 months, we should be in for an outbreak of regulatory bonfires for which the Brighton fire brigade will need additional engines. If the DWP/TPR does not have the manpower to work out which of the regulations should be ditched in accordance with government policy, perhaps most of us in the industry could organise something in the next few days. Regulators are beginning to realise that just as they have expectations of us, we have expectations of them; this has been recognised a week or two back by the head of regulation at the FCA who is rethinking regulation from the ground up, following a Treasury select committee report.
The other budget is of course financial. The DWP has suggested increasing the general levy next year. The budget is due to increase from around £35m in 2013 to over £60m in 2019 (the figures don't add up since the TPR budget alone is set to exceed £100m shortly). All this at a time when deficits (measured by the usual and inappropriate measure of gilt rates) are also rising, so there's a double whammy for employers. The TPR budget alone is expected shortly to be around £100m plus auto-enrolment, say £120m by 2022 - plus the on-cost to the industry in responding to the new rules.
The excuse in the consultation papers is that TPR is doing more work. But the measure in the papers is based on TPR output - not on member outcomes, which seem to worsen as budgets increase. There is no doubt that the financial budget could be reduced (or ‘slashed', using Daily Mail language) without adverse impact to the scheme membership, by using smart regulation. We need TPR, FCA and DWP to re-think how they might improve things with a smaller budget. While much of the UK have been struggling with austerity, the regulatory bodies seem to have been exempt. Maybe the over-zealous fines being levied for technical breaches (also in breach of the government's regulatory code) could be used to subsidise the levy rather than going to HM Treasury.
The DWP consultation document of course simply consults on how to raise the levy - and does not invite suggestions on how it might be reduced. The industry should take the opportunity to object strenuously to the demand for extra money. And it should also demand accountability - no named person is responsible for ensuring value for money in regulation. The consultation document is silent (and very hard to print in readable form) on who is personally accountable for any changes. On the other hand, maybe we should simply chill-out; a few of those £1m fines being introduced in the new legislation should fix any regulatory shortfall.
Robin Ellison is head of strategic development for pensions at Pinsent Masons
Sources and further reading
DWP, The Occupational and Personal Pension Schemes (General Levy) Review 2019, 18 October 2019, unprintable and available at
Sheila Nicoll, How to fix the worst regulation I have seen in my career, Financial News, 27 September 2019
Christopher Woolard, Regulation in a changing world, Financial Conduct Authority, 21 October 2019
For Sir Humphrey's view on accountability, see https://www.youtube.com/watch?v=cIYfiRyPi3o
See O (Committal: Legal Representation)  EWCA Civ 1721 for what happens when legal aid for example suffers austerity
Pension Schemes Bill 2019 and associated documents (https://services.parliament.uk/bills/2019-20/pensionschemes.html)
*This article was first published by Professional Pensions on 29 October, 2019*
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