Your retirement is under threat from a runaway gravy train

We would all enjoy eating sausages a bit less, so the story goes, if we could see what goes into them. Well, you’d probably feel the same way about pension regulation, if you could see how much it is costing your retirement.

Billions of pounds a year are drained from our pensions by an alphabet soup of regulators and their rule books, with precious little in the way of consent, coherence or transparency. The costs are met by the pension companies, but in the end it is us, the customers, who pay for everything.

For example, for purely historical reasons we actually have two different regulators, both overseeing virtually identical bits of our pension system. They have their own separate rule books, lawyers, accountants, HR departments, ESG policies, office premises and so on.

The Financial Conduct Authority (FCA) employs about 5,000 people and has a budget of about £780 million for this tax year to regulate the financial services industry. The Pensions Regulator is smaller, costing about £110 million a year, although confusingly its budget goes up almost every year, even as number of schemes it regulates is going down.

They both regulate defined contribution pension schemes; sometimes they regulate the same schemes at the same time. The only reason they both still exist as separate entities is because no one in authority has an incentive to stop any of this profligacy.

They both regulate defined contribution pension schemes; sometimes they regulate the same schemes at the same time. The only reason they both still exist as separate entities is because no one in authority has an incentive to stop any of this profligacy.

The regulators themselves are certainly not about to call time on their gravy train. Civil servants, too, aren’t about to rock the boat; government ministers are rarely aware of the scale and detail of what goes on and anyway they generally have more pressing issues demanding their time. Meanwhile the customer pays for it all.

• Forget the cost, we have a moral duty to cut public sector pensions

Then there’s the statutory reporting requirements placed on pension schemes — the mandatory annual chairman’s statement or governance committee report. These documents are designed to be read by members, showing investment performance, charges and whether the scheme is good value for money.

These reports are detailed, complex, run to dozens of pages, cost thousands of pounds to produce and are read by absolutely no one. Schemes also have to produce statements of investment principles; no one reads them.

They have to produce implementation statements, detailing how they have performed relative to their principles; no one reads them. Asset managers have to make climate-related financial disclosures and coming soon is a task force on nature-related financial disclosures. I could go on and on. The reporting requirements do, even though no one is reading them.

On pension transfers there are whole industry working groups whose sole purpose is to collectively manage their way around the implementation of the bureaucratic rules imposed to restrict people’s access to their own savings.

Just one meeting, with say twenty professionals in a room for a day, can cost another £10,000; there are thousands of such meetings, going on all the time across the industry and the customer pays for all of it.

• Pensioners are about to get the bill for the triple lock

To be clear, I’m not against pension regulation; financial companies aren’t to be trusted, but the regulation of them should be limited, proportionate, transparent and subject to regular auditing.

A pensions commission has been tasked with reviewing the adequacy of our pensions but, bizarrely, the terms of reference say nothing about the way the pension system is regulated; this is a missed opportunity.

Regulators have become very adept at requiring firms to disclose the cost of fund management, the cost of administration, the cost of trading etc. How about we add on another line for us all to see: the cost of regulation?

Tom McPhail is an independent pensions expert with 40 years’ experience