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Opra: Tackling the risks to pension scheme members

Opra, the UK body responsible for regulating the governance of work-based pensions, needs to build on its achievements by focusing more closely on the risks to the members of pension schemes, according to a report published to Parliament today by Sir John Bourn, the head of the National Audit Office.

The report concludes that Opra has encouraged better governance of pension schemes. The number of reports of breaches of pensions law made to Opra has been falling. And Opra has stepped in to appoint trustees to pension schemes in difficulties, resulting in pension scheme members gaining access to £159 million of assets between 1998/99 and 2001/02. Since 1997 there have only been three cases serious enough that the Pensions Compensation Board has had to make compensation payments. Opra’s activities to inform and educate pension scheme trustees are well regarded, and their work more generally seems likely to have improved the way schemes are run.

Opra has had limited information on the effect that its interventions have had in improving governance and how many schemes have suffered serious problems. This has constrained its ability to identify risks to pension scheme members. The report recommends that Opra should have more detailed information on the schemes it regulates and on the outcome of its work. Much of Opra’s work has focused on dealing with reports of breaches that pose a low risk to scheme members. Some 60 per cent of cases have been of late payments of pension contributions where the impact on scheme members is negligible – the payment has often been made by the time that Opra take action and nearly half of the payments were less than 10 days late. The report recommends that Opra raise the threshold for the reporting of breaches of the Pensions Act.

Handling a large number of cases has restricted Opra’s ability to target more important risks to pension scheme members but Opra has been improving their targeting processes as their understanding of the risks has improved. The report recommends, and Opra is committed to developing, distinct regulatory responses to different types of scheme.

Finally, Opra has not clearly articulated how its work should protect pension scheme members. The Pensions Act does not set out its functions or objectives and Opra’s view of its power has been restrictive. It is now starting to develop such a statement.

The Department for Work and Pensions are currently considering wider reform of pensions and pensions regulation and will shortly publish a green paper on pensions and the final report of the quinquennial review of Opra. The National Audit Office’s report recommends that their conclusions and suggestions for improvements in the way that Opra regulates pensions should inform the decisions that the Department take.

"Opra has achieved much since they were established in 1995. But, as it and the Government now recognise, it needs to move from handling a large number of small scale reports to focus more on identifying and mitigating the more serious risks faced by members of pension schemes. Opra’s enthusiasm for change will be an important asset during a time of general development in the regulatory environment for work-based pensions".

Sir John Bourn, head of the National Audit Office

Notes for Editors

  1. Opra is the UK regulator of pension arrangements offered by employers. It was set up under the Pensions Act 1995, and took up its full powers in 1997. Opra has a board of nine part-time members and a part-time chairman, Harriet Maunsell OBE (appointed 1 April 2001). The board members are appointed by the Secretary of State for Work and Pensions and are from a wide variety of pensions backgrounds. Opra’s chief executive is Tony Hobman (appointed 24 April 2002). Opra is based in Brighton and is responsible for the Pension Schemes Registry based in Newcastle.
  2. There are some 100,000 occupational pension schemes holding assets totally £770 billion and with 25 million members. Opra’s statutory role relates to the way these schemes are run and the security of the assets held. It has no remit or powers to address the decline in the number of pension schemes open to new members or changes in the type of benefits that schemes deliver, such as away from pensions based on final salary.
  3. The Pensions Compensation Board, established in 1997, helps occupational schemes which have suffered a reduction in value of their assets as a result of dishonesty and where the sponsoring employer is insolvent. The Scheme is funded by a £2 million levy on occupational schemes made in 1997/98.
  4. The report identified four main risks to members of work-based pension schemes: the risk that assets are misappropriated; the risk that funds are insufficient to provide pension scheme members with the benefits that they could reasonably expect due to insufficient contributions to the scheme, inadequate or inappropriate investment, or the way in which a pension scheme is wound up; that incorrect benefits are paid to pension scheme members in due course; and the risk that scheme members lose track of pension schemes or vice versa. The NAO report on Opra complements other reports which have examined the wider context of UK pensions, including the Department for Work and Pensions’ Pensions Simplification Review and the Quinquennial Review of Opra. In particular, the Simplification Review concluded that statutory requirements for pensions should focus on the objective to be achieved rather than the process needed to achieve it. The report proposed a "new kind of regulator", more proactive than Opra, to act as an adviser as well as a regulator, and issue codes of practice or guidance notes. Opra has started to evolve in line with these recommendations.
  5. Press notices and reports are available from the date of publication on the NAO website at https://www.nao.org.uk/ Hard copies can be obtained from The Stationery Office on 0845 702 3474.
  6. The Comptroller and Auditor General, Sir John Bourn, is the head of the National Audit Office employing some 750 staff. He and the NAO are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public sector bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their

 

PN: 63/02