We provide support to the UK's regulator by helping them understand the pension costs of the companies they regulate.
Economic regulators exist to protect consumers - the companies they regulate are utilities providers and service providers. The important role of the regulator is to ensure that customers are treated fairly.
Background
The Government Actuary's Department (GAD) works with economic regulators by engaging with the companies we regulate when it comes to their pension costs.
Examples of GAD's work includes the support we provide to Ofgem and to the Civil Aviation Authority with our review of Heathrow Airport Limited's deficit costs.
Pensions complexity
With funded defined benefit pensions, traditional employers engage with trustee boards to agree appropriate pace of funding.
The role of trustees is to prioritise the security of the benefits. They tend to prefer cautious investments and greater requirements for cash from the sponsoring employer.
A regulator's role is to set out expectations of efficient behaviours, which treat consumers fairly.
There is no one size fits all approach. Benchmarking against other, similar schemes can help support regulators' decisions, and this is one approach GAD has adopted in our support to UK regulators. Our reviews typically explore:
- benefit design
- investment strategy
- funding strategy
- pensions policy
- the context of DB funding regulation
Many regulators have the power to set the price which is charged to consumers. Where charges are deemed to be excessive, they can restrict the level of pension costs due to be passed on.
The role of regulators includes a responsibility to operate fairly on behalf of customers and stakeholders.
With GAD's partnership, regulators can form informed views, supported by data, analysis and evidenced based expertise.
Credit: Chris Liverani, Unsplash
GAD's view
One of GAD's actuaries supporting UK regulators, Scott Madden, said: "I found it fascinating to help our clients unpick the complexities of pensions and to learn about the relationships and dynamics between trustees and sponsoring employers.
"We also have a role in thought leadership in areas of regulatory pension policy in light of the substantial changes in the industry and market environment observed in the last couple of years.
"The UK's regulators are experts in the complexity of regulating businesses. GAD's support as pensions experts helps regulators reach robust conclusions on the nuanced and complex world of DB pensions. We find these projects fulfilling, as they allow our clients to cut through to solutions."
