When you really think about it, the enjoyment of sausages might take a hit if you knew what went into them. Similarly, if you had a clear view of pension regulations, you might find yourself feeling quite uneasy about their impact on your retirement savings.
Billions of pounds yearly are siphoned off from our pensions due to a convoluted system of regulators and their myriad rules, which lack consent, consistency, and transparency.
Although it’s the pension providers who manage these costs, at the end of the day, we—the customers—shouldering the financial burden.
Take, for instance, the strange situation where two different regulators handle essentially the same aspects of the pension system, each with distinct rulebooks and teams of legal, accounting, and HR personnel.
The Financial Conduct Authority (FCA) employs around 5,000 people and operates on a budget of about £780 million for this tax year, tasked with overseeing the entire financial services sector. In contrast, the Pensions Regulator is considerably smaller, with an annual budget around £110 million, yet its budget has been steadily rising, even as the number of schemes it oversees has decreased.
Both entities regulate defined contribution pension plans. At times, you might find the same plan being monitored by both organizations. The continued existence of these separate bodies seems to be a matter of convenience for those in power, who lack any motivation to address this inefficiency.
It’s unlikely that the regulators will disrupt what’s working for them. Civil servants have little incentive to shake things up, and government ministers are often too preoccupied with other pressing matters to comprehend the intricacies at play. Meanwhile, we—the customers—are left footing the bill.
• Forget about costs, we have a moral obligation to cut public sector pensions
Moreover, pension schemes are burdened with statutory reporting requirements, including annual chairman’s statements and governance reports. These documents, designed for member consumption, ostensibly offer insight into investment performance, fees, and overall scheme value.
However, these lengthy reports are packed with complexity, often spanning dozens of pages and costing a small fortune to produce, yet very few ever glance at them. The schemes are supposed to draft statements of investment principles, but again, they go unread.
They are also expected to create implementation statements assessing performance against these principles, which similarly gather dust. New climate-related financial disclosures will soon be demanded from asset managers, and a taskforce focused on nature-related financial disclosures is on the horizon. The list could just go on. Even if these reports are essential, it’s curious that no one seems to bother reading them.
In the realm of pension transfers, there’s a working group dedicated to helping folks navigate the bureaucratic maze that limits access to their savings.
Just to illustrate, a single meeting can cost upwards of £10,000 if you gather, say, 20 specialists in one room for a day. This kind of gathering happens all the time in the industry, and guess who ends up paying? That’s right—us, the customers.
• Pensioners will soon receive triple lock bills
Just to be clear, I’m not pushing back against pension regulation entirely. While financial companies might not always act in good faith, any regulation should be reasonable, transparent, and open to regular audits.
The Pensions Commission has been assigned to evaluate the adequacy of pensions, yet oddly, the guidelines don’t consider the regulatory framework. That feels like a missed opportunity.
Regulators have become adept at requiring disclosures on cash management, administrative, and transaction costs. Wouldn’t it make sense to itemize “regulatory costs” separately so we can fully understand the impact?
