The Pensions Regulator

David Norgrove looks to future of regulator at NAPF conference

Ref: PN06-21
8 June 2006

Speaking today at the NAPF Annual Conference 2006, David Norgrove, chairman of the Pensions Regulator, set out the priorities for the regulator building on the progress made during its first year of operation.

In a joint presentation 'The Pensions Regulator and the PPF - One year on and the challenges ahead' with Lawrence Churchill, chairman of the Pension Protection Fund, Norgrove described some of the issues that the regulator expects to face.

During its first year the regulator has focused on developing the organisation and acting against avoidance through the introduction of the clearance process. A new scheme funding framework for defined benefit schemes has been implemented, and the regulator has helped to educate the wider pension community through the issuance of codes of practice and the launch of the free online training programme, the Trustee Toolkit.

Looking to the future, Norgrove outlined how the regulator will use two separate triggers to monitor the progress of scheme funding: the level to which the technical provisions are set and the length of the recovery plan.

He said: "The triggers are not targets but will point out those schemes whose funding plans could merit a closer look. We will be flexible in our approach, recognising that schemes with strong employers pose less risk and that in most cases the best protection for members' benefits is an ongoing employer."

The regulator will continue with its risk based approach but will refine the process, focusing interventions more intensively on those schemes with more than 1,000 members, Norgrove added. "This reflects the fact that 85 per cent of members are contained within just two per cent of schemes and is aligned with a realistic assessment of our capacity. However, regulating schemes at different levels of intensity will not mean overlooking issues which relate to smaller schemes."

The regulator will also focus on defined contribution schemes where there is a more varied range of risks. Norgrove said: "Good administration to ensure the timeliness and accuracy of payments and allocation of contributions is essential if schemes are to attribute the correct fund value to individual members. If there are administrative errors these can be very costly and time-consuming to rectify." Norgrove confirmed that the regulator's early focus will be on identifying and prioritising the key risks and helping the pensions community to understand the issues.

Finally, improving the standards of governance will be a priority. Norgrove concluded:" With the introduction of the toolkit, most trustees of small to medium sized schemes now have access to free online training. During the next three years the main thrust of our work will be on helping the regulated community understand what is expected of them. "

Editor's notes

1. The National Association of Pension Funds Annual Conference was held at the Excel Centre in London on the 8-9 June. The NAPF's annual conference brings together faces from across the industry in both private and public sector to debate the state of the pension system in the UK. More information is available from: http://www.napf.co.uk/conferences
2. Under the optional clearance process, which came into effect in April 2005, companies considering corporate transactions where there is an underfunded defined benefit pension scheme can apply to the regulator for a clearance statement. This gives assurance that the transaction does not contravene anti-avoidance legislation and that the regulator will not use its anti-avoidance powers in relation to the transaction once completed.
3. The regulator's codes of practice give practical information about how you can comply with relevant requirements and set out the standards of conduct and practice expected.
4. The Trustee Toolkit was designed to improve trustees' knowledge and understanding, and help them meet statutory requirements. The toolkit is available at http://www.trusteetoolkit.com/.
5. The technical provision is the value of the assets needed to meet liabilities as they fall due.
6. The recovery plan has four triggers - the deficit should be funded in a period of 10 years or less, the assumptions for the recovery plan contributions must be realistic and if there is significant back-end loading (higher contributions towards the end) it will trigger. The final trigger will come if the regulator is alerted to a scheme that requires the regulator's attention e.g. where the employer covenant is deteriorating quickly.
7. The Pensions Regulator is the regulator of work-based pensions in the UK, with wider and more flexible powers under the Pensions Act 2004. It replaced Opra which no longer exists.
8. The new powers of the Pensions Regulator include the ability to:
   • collect more detailed scheme information;
   • impose a statutory obligation on 'whistleblowers' to report suspected breaches of the legislation to the regulator;
   • issue improvement notices and third party notices, enabling the regulator to ensure problems are put right;
   • freeze a scheme that is at risk, while the regulator investigates; and
   • prohibit trustees who are judged not fit and proper to carry out their duties.