The pros and cons of merging the Pensions Regulator and the Pension Protection Fund (PPF) have been set out in an independent consultation paper commissioned by the government.
As part of the independent Review of Pensions Institutions commissioned by the Department for Work and Pensions (DWP), a consultation document written by Paul Thornton, managing director of Gazelle Corporate Finance and a previous president of the Institute of Actuaries, has been published. The paper questions whether it is a good idea to merge the two bodies.
In January the government asked Thornton to carry out the external review of organisations involved in the regulation and protection of workplace pensions, which included the responsibilities of the Pensions Regulator; the PPF and the Financial Services Authority (FSA) in ensuring that work-based pensions support government policy and fit with pension reform proposals and with development in the pensions market.
In the paper, Thornton outlines the arguments in favour of bringing the PPF and the Pensions Regulator together and†stated that a single organisation could mean “simplicity and better accountability” leading to better communication on regulation, compensation and risk. The Pensions Regulator oversees work-based pensions, while the PPF provides compensation to members when companies go under. One of the reasons the merger has been favoured is that it would allow one organisation to consider all the risks to pensions schemes and the two bodies already work closely due to the overlapping of certain responsibilities.
The arguments that Thornton had heard against the merger included, the need for further development of both relatively young bodies and the maintenance of their distinctive expertise and functions. In the paper, Thornton stated: “PPF’s approach to risk assessment could be compromised by being part of a combined organisation with broader objectives. This seems to me to be a particularly important issue and requires close examination.” The paper also drew attention to potential conflicts of interest and the possibility of a merger making checks and balances transparent.
Pat Wynne, director of Xafinity Consulting, said: “While noting that the number of regulators is extremely large – so implying there ought to be scope for rationalisation – this shouldn’t be done just for the sake of it. In the short- to medium-term, merging the Pensions Regulator and the PPF could result in both parties taking their eyes off the ball. As noted by Paul Thornton, there would also be operational dangers. If the PPF in effect became the dominant party, this could lead to undue pressure on scheme funding policy.”
Also considered in the paper was a merger between the Pensions Regulator and the FSA. Wynne added: “With the accelerating trend to DC provision, it would seem more appropriate for the regulation of all DC arrangements – whether trust or contract-based – to be regulated by a single organisation, which should be the FSA. In other words, the Pensions Regulator should just concern itself with DB pension arrangements.”
Industry has three weeks to respond to the consultation. Thornton’s full findings will be presented to ministers later in the spring.