TPR grows investment team and vows to 'probe' strategies

In a speech to the British Private Equity and Venture Capital Association this week, the Pensions Regulator’s (TPR) chief executive Nausicaa Delfas said the watchdog had hired more staff and changed its structure, in part to reflect the changing nature of the pensions industry. 

“You will notice a difference in how we engage with schemes and also the wider market,” she said. 

Delfas said the regulator expected trustees to demonstrate “proper risk management controls, and a genuine understanding of what the right balance of risk and reward is for their type of member, and their type of scheme”. 

Trustees should set clear objectives for their members and keep these under review, assessing how likely the scheme is to meet these aims as performance and external factors change. 

“Investment decisions are not no-risk, but instead should be the product of informed decision-making,” Delfas said. “Because just as taking too much risk puts good saver outcomes in jeopardy, excessive caution and over-investing in low-risk, low-return assets could end up depriving them of much needed retirement income.” 

The chief executive explained that, while the regulator would not tell schemes where to invest, it would “probe” strategies and processes to ensure they had the “controls, capability and scale to really deliver for savers”. 

The increased scrutiny reflects the systemic importance of default funds in particular, as alluded to by Delfas. Earlier this year, a government report highlighted that 94% of all master trust members were invested in a default fund, illustrating the importance of ensuring good investment governance. 

Productive finance and value for money 

Delfas explained how the proposed Value for Money framework intersects with the government’s productive finance agenda. 

New long-term asset funds had begun to open routes to illiquid assets such as private equity for defined contribution schemes, she said, while the regulator had also issued specific guidance for trustees to help them understand and interrogate potential new asset classes. 

However, for “meaningful, positive changes” to be made to investment strategies, Delfas said the industry required much greater transparency about the returns and costs involved in asset classes such as private equity and venture capital. 

“I want every trustee and their advisers to know and understand the returns, and services received, for the price paid,” Delfas explained. “That is why we will increasingly turn to disclosure to help foster a different kind of market dynamic and support a different type of supervisory engagement.” 

She added: “In asking schemes to publish this data, and make their assessments of value, we don’t seek homogeneity. In a truly competitive market, schemes will cater to different groups of employers with different product offerings. 

“What we want is that variation, to be a conscious decision by trustees and employers based on the wants and needs of their pension savers, not as a by-product of a lack of transparency.” 

A unique engagement opportunity 

Delfas also called for private equity and venture capital organisations to engage with the Value for Money consultation, which is open for feedback until 17 October, as well as the government’s Pensions Review. 

“This is a unique opportunity to make pensions work for everyone,” she said. “With automatic enrolment, we have built a nation of pension savers – now we need to ensure that they receive value from their saving, from joining the workforce, to right through retirement... 

“Commercial considerations can sometimes mean we’re guarded as an industry – but to really get this right, we have to talk to each other more, to understand where the barriers and opportunities are and come to some consensus on a way forward.” 

Further reading

How to get pension schemes investing in productive assets (12 August 2024)

How master trust regulation is evolving (9 July 2024) 

TPR boss outlines consolidation drive (13 March 2024)