An independent report reveals that there are a number of regulatory issues that require further analysis and potentially regulatory reform.
The key findings include DB inflation proofing; DB employer covenant regulation; governance requirements; and DC contract-based provision.
It found the mandatory inflation proofing in the UK is out of step with regulation elsewhere and makes the DB promise more expensive than in other countries.
Another finding is that 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.
Also, the research shows that 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.
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, the findings show. Consideration should also be given to encouraging wider use of management committees, default funds and annual reviews.
The report compares key elements of the UK regulatory framework for private pensions with Australia, Germany, Ireland, the Netherlands and the USA. These elements included design rules, benefit security and governance.
NAPF’s director of policy Nigel Peaple says comparing different regulation 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,” he adds.
“We hope the analysis will help promote informed discussion on how the regulatory framework in the UK should evolve in the future,” Peaple says.