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Pensions regulation is unclear, says NAO

Retirement income not guaranteed for taxpayers

The incoherent way pensions are regulated means there is ‘insufficient accountability’ in making sure people get value for money, according to a National Audit Office report. 

Too many regulators

The fact that the regulation of pensions is split between different bodies means there is no way of knowing that people are getting the correct amount of retirement income, said the NAO’s report, which focuses on the pensions regulator and its supervision of defined benefit pension schemes, (Read more about defined benefit pensions).

The report said: ‘There is no common framework for assessing risk and measuring performance across the different bodies involved, and no single body has overarching responsibility for the delivery of regulatory objectives.’

For example, both the Pensions Regulator and the Financial Services Authority (FSA) oversee certain elements of defined contribution schemes.

Varying outcomes

The report also raises the issue of wide variations in income between members of defined contribution pension schemes. Although these variations can be caused by obvious factors like contribution level, some schemes have high charges, which also impact how much people get in retirement.

Administration fees alone can vary the outcome of two similar pension pots by as much as 17%, according to the NAO.

With a defined contribution pension scheme there’s no guarantee on how much money you’ll get in retirement, but the NAO is concerned that the lack of regulation around fees causes too much uncertainty.

Time for improvement

The NAO concluded that there is a public interest in improving pension savers’ outcomes because of the amount that taxpayers contribute to them. For more on this, see our guide on How pensions are taxed.

The NAO said: ‘The taxpayer has a substantial interest in the regulatory system. In 2010-11, tax relief for employer sponsored, private sector defined contribution schemes was an estimated £8.5 billion.’

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