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Pensions Regulator urged to investigate risks

24/04/2008

An influential committee of MPs has urged the Pensions Regulator to look at risky money purchase schemes.

The public accounts committee (PAC) report into the Pensions Regulator – established in 2005 replacing the Occupational Pensions Regulatory Authority (Opra) – found the body had "acted to put the regulation of pension schemes on a firmer footing".

However, the PAC found the Pensions Regulator "has made a slower start in the regulation of money purchase schemes", and more work remains to be done in improving standards of scheme governance and communication with members.

Money purchase pensions schemes move the investment risk from the employer - as in final salary schemes - to the employee.

Edward Leigh MP, PAC chairman, said: "The Regulator has made good progress on regulating final salary schemes but far less in the considerably riskier area of money purchase schemes.

"This is especially important given the increasing emphasis on money purchase schemes.

"The Regulator must now target the riskiest of those schemes."

He added where schemes are being badly managed the Pensions Regulator must step in to ensure members' benefits are being protected.

"So far it has appeared reluctant to use its enforcement powers."

Mr Leigh added: "The regulator must also do more to remedy the widespread lack of understanding of money purchase schemes by members, especially that they bear entirely the risk that the funds accumulated on their behalf might not provide a reasonable pension."

Responding to the report, Susan Anderson, director of human resources policy at the CBI, said: "The committee is also right to emphasise the importance of ensuring that members of defined contribution schemes understand the nature of the risks they face.

"However this is not an area where the regulator should take the lead.
"It should work with the Financial Services Authority (FSA), the insurance industry and employers to ensure there is appropriate communication with scheme members so they are aware of the nature and risks of their pension investment."

Around four million people are active contributors to work-based private pensions schemes in the UK, but as many as 20 million have contributed to schemes in their lives.