When in life should we use soft power? When should we take formal action?
The optimum balance between “nudge” influence and formal enforcement is one of the most important and complex issues facing any regulator worldwide.
This delicate pendulum is considered in depth in the articles by the Economic Policy Institute the Canadian Commonwealth Report amongst others, linked below.
With this in mind I was interested to see the Pensions Age Article on TPR's KPIs from its Annual Report and Accounts
As a comparison, commentators mention that regulation in the USA has been viewed as burdensome, with Mike Moffatt of the Ivey Business School and the Smart Prosperity Institute suggesting it has been seen as overly restrictive.
Deregulation in the USA has been gaining in popularity in recent years, whereas Canadian pensions regulation appears to have greater support in Canada in adopting a more formal approach to use of powers. Also a report from the World Bank Group views this form of governance as supporting increased transparency and independence.
How and when TPR will use its powers going forward? On the one hand there is a case for flexibility and easements, on the other there will likely still be cases where the matters involved will mean that the formal use of powers is needed.
The figures for TPR's formal use of powers seems relatively low in certain areas. At the same time TPR confirms that it has materially increased its level of interventions. As such it seems that TPR is using its toolkit of powers as a backdrop to influence behaviours without frequently referring matter to its Determinations Panel.
On increased intervention the report notes: "Levels of risk-targeted interventions have significantly increased this year due to the introduction of the regulatory initiatives and other proactive interventions such as scheme return enforcements".
This approach is reflected in 33.2 per cent of schemes have been subject to risk-targeted regulatory intervention.
Of the powers that have been used to a greater extent, Automatic Enrolment is notable with 48,267 fines for not complying with the AE regulations.
The summary table below is also of interest - including that:
- There were 3 cases where TPR appointed trustees to schemes under section 7 of the Pensions Act 1995. Again this number may seem low compared to the number of scheme interventions. There may well be cases where TPR has suggested changes to trustees boards, that have then taken place without the use of formal powers.
- The Panel suspended 4 trustees and prohibited 2. Again these figures suggest that TPR is influencing trustee boards and behaviour not by the use of powers but by less formal interaction.
In essence the question of the balance between nudge theory and formal enforcement will be as ever present as seasonal tides. The Pensions Regulator is clearly continuing to work actively in the industry to promote compliance and best standards, with a major emphasis on soft power and guidance, and use of its substantial enforcement powers on key cases.
Economic Policy Institute https://www.epi.org/publication/understanding-the-anti-regulation-agenda-the-basics/
“Every saver deserves to be in a well-run and well-governed pension scheme, and we have successfully driven up standards across schemes thank to our supervisory approach. We have been in direct contact with more schemes than ever, creating strong, two-way relationships allowing us to monitor closely, clearly outline expectations and prevent problems developing in the first place.