NAPF: Report highlights four key issues for UK pensions regulation

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Friday, 10, Oct 2008 12:00

An independent report written for the National Association of Pension Funds (NAPF) has found four areas where UK pensions regulation is out of step with international practice.

The report compared key elements of the UK regulatory framework for private pensions with those in five other OECD countries which have large private pension sectors: Australia, Germany, Ireland, the Netherlands and the USA. These elements included design rules, benefit security and governance.

The report identified a number of regulatory issues that require further analysis and potentially regulatory reform. The key findings from the report included:

DB inflation proofing: the mandatory inflation proofing in the UK is out of step with regulation elsewhere and makes the defined benefit (DB) promise far more expensive than in other countries.

DB employer covenant regulation: the UK has unparalleled regulation of the DB employer covenant when compared to the regulatory regimes used elsewhere. If mandatory indexation was removed it would be easier to apply higher funding levels which would reduce the need for such strong regulation of the covenant.

Governance requirements: the UK requirements for governance in trust-based schemes are high and are only exceeded in countries where most pension schemes are very large and consideration should be given as to whether the UK’s approach is proportionate.

DC contract-based provision: the regulation of contract-based schemes, especially group personal pensions, is out of line with the regulation of similar DC schemes in most other countries. Consideration should be given to encouraging wider use of management committees, default funds and annual reviews.

Nigel Peaple, NAPF Director of Policy said:

“Comparing UK regulation to that in other countries gives a fresh and objective perspective.

“The study shows we need a more flexible approach for DB schemes, especially regarding indexation and the employer covenant.

“As for DC schemes we need to think carefully about how best to achieve high standards of governance over both trust based and contract based schemes.

“We hope the analysis will help promote informed discussion on how the regulatory framework in the UK should evolve in the future.”

ENDS

1. UK Pensions Regulation Compared is available from http://www.napf.co.uk/policy/research.cfm

About the National Association of Pension Funds

The NAPF is the leading voice of workplace pensions in the UK. We speak for 1,200 pension schemes with some 15 million members and assets of around £800 billion. NAPF members also include over 400 businesses providing essential services to the pensions sector.

Journalists requiring further information, please contact

Mark Brooks 020 7808 1312 mark.brooks@napf.co.uk 07917 506683

Ruth Wharram 020 7808 1345 ruth.wharram@napf.co.uk 07825 171446

Ruth Wharram

Press & Communications Officer

Tel: 020 7808 1345 07825 171 446

Fax: 020 7222 7585

http://www.napf.co.uk