UK - An independent review of The Pension Regulator's (TPR) risk-based approach to regulation has highlighted a number of key strengths but noted more work needs to be done on targeting advice at smaller schemes and communicating risks inherent in trust-based defined contribution (DC) schemes.

The report from the Better Regulation Executive (BRE) and National Audit Office (NAO) concluded that the Hampton principles - published in a 2005 report to set out the government's better regulation agenda - had been "thoroughly embedded in the regulator's work, both at strategic and operational levels".

In particular, It highlighted the way in which risk-based thinking is "integrated into the culture of the organisation", while stating TPR's overall approach is one of continuous improvement to develop systems and services that identify and manage risks.

However, the Hampton Implementation Review, which was completed between June and July 2009, noted that while TPR had made considerable progress as a risk-based regulator in relation to defined benefit (DB) schemes, "the systems and structures for managing risks to DC pensions do not at present inspire the same levels of confidence and assurance amongst some stakeholders".

The report noted the implementation of the Pensions Act 2008 - giving TPR responsibility for employer compliance with auto-enrolment - will be a "significant departure for the Regulator from the way it has operated in the past".

This combined with the long-term trend for employers to move away from DB schemes to hybrid or DV provision resulted in the report recommending that TPR "do more to communicate its thinking about the handling of the risks inherent to trust-based DC schemes".

It also encouraged TPR to share its thinking on how it plans to deal with the employer compliance regime (ECR) and manage the associated risks.

The results of the review do highlight TPR's ongoing work in this area, noting the publication last year of the first annual analysis of trust-based schemes.

In its response to the BRE report, TPR added: "We are already focusing on these issues, in the broader context of responding to the challenges of the shifting pensions landscape and our new responsibilities under the Pensions Act 2008".

It agreed with the review "that it will be necessary to publish an enforcement strategy setting out our approach to regulating compliance with the new employer duties. We will consult with interested stakeholders and publish this strategy during 2010".

Other findings from the review said TPR's systems for allocating investigation and compliance resources to specific cases, on the basis of an assessment of risk, are strong, but suggested "the changing balance of the Regulator's work may mean that more conventional inspection methods could be needed in the future".

It also noted that TPR has in the past focused the bulk of its efforts on larger DB schemes but said in the future it needs to "further increase the penetration of its advice and guidance to trustees of smaller pension schemes". This is because they are less likely to be familiar with the law and possibly less responsive in complying with their duties, according to BRE.

Tony Hobman, chief executive of TPR, said: "As the landscape we regulate continues to evolve - and we prepare for our new responsibilities from 2012 - our focus will be on ensuring our risk-based approach to regulation remains fit for purpose."

This was demonstrated by figures included with TPR's response, which showed it formerly exercised its powers in 787 of the 4,747 cases and enquiries that were active between 1 April 2008 and 31 March 2009. In the following six months to 30 September 2009 TPR used its powers 798 times out of 3,272 cases, but despite the increase TPR noted "in most cases, dialogue with pension trustees, the sponsoring employer and their advisers results in matters being resolved satisfactorily".

Additional figures provided by the regulator showed in the year between April 2008 and March 2009 the determinations panel exercised its powers 14 times, of which eight were related to the appointment of independent trustees and one to the suspension of trustees. But between April and September 2009 the panel had already used its powers 15 times, of which 11 cases were related to the appointment, prohibition or suspension of trustees.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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