The Pensions Regulator (TPR) and the Financial Conduct Authority (FCA) both recognise that they need to work together, but Ian Neale from Aries Pension & Insurance Systems asks how well will the two cultures mesh.

With defined benefit (DB) schemes largely now in run-off, TPR has been allocating increasing resources to defined contribution (DC) arrangements. Whilst in the past this has meant occupational DC schemes, TPR has had to recognise that the great majority of new pension arrangements in recent years have been Group Personal Pensions (GPPs). That's a problem, because regulating personal pensions has been the Financial Services Authority's (FSA) job.

The advent of auto-enrolment, for which the Department for Work and Pensions (DWP) has responsibility, has sharpened the focus on this division of responsibility. An employer can choose any kind of pension arrangement to comply with their duty; it could be either a trust-based DB or DC scheme, or a GPP. They're all 'workplace pensions'.

TPR is responsible for monitoring auto-enrolment, but if the chosen vehicle is a GPP it will have to work with the FCA, the successor to the FSA, in regulating what goes on. The FCA regulates financial advice given to employees and supervises providers that are not regulated by the Prudential Regulatory Authority (i.e. those other than banks, insurers and major investment firms). Apart from maximising employer compliance with auto-enrolment, TPR's main responsibility in respect of GPPs is to promote good administration of the schemes.

To put it simply then, the FCA focuses primarily on what goes on before an individual starts saving for retirement via a workplace pension scheme, while TPR is concerned with how the chosen scheme is run. A memorandum of understanding between the two regulators, issued this month, recognises however that there will be many problems and risks identified, which require them to work together. The question is how well the two cultures will mesh.

The FCA was born this month as a partial replacement for the discredited FSA. Amongst many other criticisms, the FSA was condemned for poor direction and lack of accountability; it had no dedicated pensions team and its competence was frequently questioned. Beneath questions of operation, structure and management though, the underlying culture arguably was quite inimical to successful retirement provision. The FSA's view that pensions were 'products' to be bought and sold lacks the essential long-term perspective.

Will the FCA prove to be any different? Many of the staff have simply moved over from the FSA. The FCA says its aim is to make financial markets work well, and thus ensure a fair deal in financial services. It seems to recognise a need to be more forward-looking and less reactive than its predecessor. A more open question is whether the FCA is equipped to rebuild the public trust - in both the regulator and the industry, which has been so badly damaged by scandals.

Trust and confidence in pensions might be encouraged if regulators adopt a positive approach. TPR has been developing principles and guidelines for good DC schemes, but it comes from a trust-based background. The FCA knows how GPPs work. In the past, however, the FSA has been a negative regulator, ready to fine or ban malefactors but not appearing to reward good practice. Too often, indeed, its action has resulted in punishment of the many for the sins of a few.

It could help to revive public confidence if between them the FCA and TPR could devise something for contract-based pensions like the Pensions Quality Mark promoted by the National Association of Pension Funds (NAPF).

The FCA says its aim is to protect consumers, ensure our industry remains stable and promote healthy competition between financial services providers. It tells the public its aim is to help you understand your rights, make fully informed choices when buying a pension and be aware of common pitfalls. So the product view of pensions is still very much in evidence; but it should not be too difficult to promote, publicise and reward what is good.

TPR says it is committed to increasing confidence and participation in work-based pensions. To succeed in an increasingly contract-based world, it will need to make common cause with the FCA. Most of what little information is available about pensions at the moment on the FCA's website focuses on pension transfers and pension liberation (and a link to TPR's website takes you to their 'scorpion' page). At least this evidences a common interest in protecting pensions. Whether the FCA can change its inherited culture and engage in promotion is an open question.

Written by Ian Neale, director, Aries Pension & Insurance Systems Ltd

ian@ariespensions.co.uk