TPR: 2019 must see member security improve

This year looks set to see positive progress in several areas, including the final increase to automatic enrolment minimum contributions, a changing future for defined benefit, and the development of the dashboard to help savers keep track of their pensions.

Saving into a workplace pension has become the norm, but the task of making sure people have enough money for retirement continues as contribution rates rise to 8 per cent in April.

TPR will work to remove barriers to consolidation and to challenge trustees, as well as their sponsors, to ensure their scheme meets the standards set out in the law and in our codes and guidance, or consider winding up

Together with the Department for Work and Pensions and the pensions industry we will keep a close eye on the impact of the increase. We will continue, including through our advertising campaign, to encourage staff to recognise the benefits of saving into their pension.

DB funding expectations will be clearer

Last year we welcomed the government’s proposals for clearer DB funding standards and for more effective powers, allowing us to take tough action where expectations are not met.

We have started work on a new DB funding code, which will introduce standards to help trustees and employers to agree good funding outcomes for their schemes, and which should, alongside planned expansion of our powers, better equip us to take enforcement action.

We will engage actively with the industry to ensure this revised code is based on expert input, has industry consensus and provides practical guidance on long-term funding.

We want the revised code to be clearer about ambiguous terms such as ‘prudent’ and ‘appropriate’, while preserving the flexibility of the current approach to recognise different scheme situations.

We will initially consult on options for a clearer framework early this year, with a consultation on the new draft code expected later in 2019.

Where standards in the funding code are not being met, the government’s proposed changes to powers – including the section 231 funding power and new fines and information-gathering powers – are designed to strengthen our ability to take regulatory action.

This could include imposing an appropriate recovery plan. We are working with the DWP on developing these new powers.

Consolidators will be tightly regulated

Commercial consolidators, schemes that exist purely to look after pension entitlements, look set to play an increasing role in both the DB and defined contribution pensions landscape.  

Mastertrust schemes that provide DC pensions for multiple unconnected employers are applying to us for authorisation, or winding up and exiting the market. We are overseeing those exits to ensure trustees are acting in the best interests of members and that savers are being protected.

We expect to announce the first batch of authorised schemes in the spring. By the end of the year we will have a market of authorised mastertrusts meeting new and tougher standards, and better protecting the millions of members in these schemes.

In new DB superfunds, members’ security will come from a capital buffer, rather than ongoing employer contributions. An authorisation framework planned by government is under consultation and development.

This means DB consolidation vehicles will have to prove to us that they meet standards in certain areas, putting safeguards around the market.

In the meantime, we have set out our expectations for these schemes about how they should operate, and also provided guidance for employers seeking to enter the schemes.

Small schemes have key questions to answer

It is important to stress that we do not just expect good practice among superfunds or mastertrusts – traditional schemes must also meet high standards.

Following on from our 21st Century Trusteeship campaign, which worked to drive up the standards of governance among trustees, we will continue to ask those responsible for running schemes if they are acting in the best interest of members.

We want to see better value for members and fewer poorly run schemes. This is particularly pertinent for small schemes: trustees need to fully consider if operating at this scale represents good value for members, especially if their small scale is accompanied by a poor compliance record.

TPR will work to remove barriers to consolidation and to challenge trustees, as well as their sponsors, to ensure their scheme meets the standards set out in the law and in our codes and guidance, or consider winding up.

So 2019 will see the industry pushing ahead with new and effective policies and solutions to the challenges we face, while we at TPR will be developing our new supervision approach to better protect savers in the future.

Fiona Frobisher is head of policy at the Pensions Regulator.