COMPLIANCE
Overcoming compliance
Ian Neale, director at Aries Insight , discusses the issues andwonders whether it’s time to take back control
T o borrow the title of a book currently making waves in America, it seems like ‘too much and never enough’ is a fair description of compliance today. In practically all sectors of the pensions industry, the cost of doing business has been accelerating over the past forty years in proportion to the remorseless rise in imposed compliance requirements. The volume of legislation has risen almost exponentially, subject only to a check since the 2016 referendum directed the government’s attention elsewhere. In tandem, we’ve been moved from self-regulation to the state we’re in today, facing both The Pensions Regulator (TPR) and the Financial Conduct Authority (FCA). If their current ‘guidance’ was printed it would occupy many shelf-feet of space, but the days of laboriously replacing pages of out-of-date material in loose-leaf volumes have gone. Instead, we find it online. So a new profession has arisen, with organisations having to appoint compliance officers, whose job it is to keep track of all the changes and make sure colleagues do the right thing, in the right way, at the right time – and report to the regulators. Mistakes mean fines – or, worse, complaints. The ensuing adverse publicity reaches legislators, who decide more burdensome rules are required. The popular image of pensions, sadly, never seems to have recovered from misbehaviour in the wild west days of the late eighties, when ‘mis-selling’ entered the lexicon – as government ads encouraged members to throw off the chains of fuddy- duddy company pension schemes (mostly defined benefit) and take back control via a personal pension. Pension transfers are once more centre
stage (if they ever left), with fraudsters enjoying a new opportunity boosted by the advent of pension freedoms. Scheme administrators are under pressure from new directions, including claims management companies (subject to FCA regulation since April 2019) and ombudsmen. Demonstrating adequate member protection is no simple matter. This seems to stem from a prevailing view among regulatory bodies that the principle of caveat emptor (let the buyer beware) is overridden in pensions by the asymmetry of information between members on the one hand and providers and intermediaries on the other. This has led to an additional proliferation of regulatory fervour, adding layer upon layer of ‘disclosure’ rules to the burden of compliance. All this is supposed to be monitored: there’s not much point in making new rules if nobody checks on compliance. So, regulations prescribe a mesh of reporting obligations and deadlines, ostensibly for the benefit of pension scheme members although it is often questioned what benefit is conferred. The imperative though is compliance; at minimum cost, of course. The zeal to give members all the information legislators think they ought to have, allied to an equivalent passion for minimising risk, leads to widespread deposition of slabs of boilerplate text in disclosure documents – which nobody ever reads. Statutory money purchase illustrations, for example, are mandatory every year for members with money purchase pots but receive hardly any more attention than the ‘terms and conditions’ every website demands visitors assent to. Dawning recognition of this, after more than fifteen years, has spawned the push
for a simpler annual benefit statement limited to two sides – if not just one – of A4. Unknown for now is whether the findings of research into what members actually want to know will trump what providers think they need to tell them to avoid later claims for compensation. I think we need to open up; we need a transformation, beyond a narrow focus on compliance, disclosure and reporting, in favour of transparency. Recent legislative developments requiring publication on websites, sometimes superseding a former obligation to supply printed paper via the post, are a good move and should obviously reduce the burden of cost. However, this is about ‘what you have to do’; but proving that you’ve done it is often another matter. Effectively tackling the overgrown regulatory reporting culture is going to require much more backbone because, after all, regulators rule, don’t they? We have an interesting opportunity this year, though. As all weary pensions professionals know, regulators are funded in large measure by levies paid by pension schemes, firms and individuals subject to regulation. Last autumn the Department for Work and Pensions was looking for a big hike in the general levy paid by occupational and personal pension schemes, but after strong push-back settled for just 10% more. Then with the arrival of the pandemic, regulations embedding this increase were suddenly revoked. There should be a very vigorous discussion before any further increases are accepted by the industry. There are two ways to look at it. Most organisations work within a set a budget, so expenditure is limited by income. What seems to happen in the regulatory sphere is that the level of activity is determined first and then funding sought to match it. Time to seize the moment, and take back control? n
...regulations prescribe a mesh of reporting obligations and deadlines...
| Professional in Payroll, Pensions and Reward | September 2020 | Issue 63 26
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