TPR is to split its oversight of defined contribution pension funds into four categories as part of a major overhaul designed to reflect the changing nature of the sector.
The watchdog announced today (20 February) that it planned to regulate the UK’s 33 master trusts differently to other types of defined contribution (DC) vehicles to help “identify market and saver risks sooner”.
It follows a 14-week testing exercise with three master trusts to assess the findings of a wide-ranging review of DC supervision.
“Monoline” master trusts – such as Nest – will be regulated in a separate group to those offered by commercial operators such as Legal & General and Aviva. TPR will assign each entity in these groups a “dedicated multi-disciplinary team” to monitor areas such as strategy, investment and governance.
A third regulatory group will combine non-commercial master trusts with collective defined contribution (CDC) schemes, while DC schemes attached to one company or connected employers will make up the fourth category.
“Each segment will have tiers of engagement based on the specific risks they present to market and saver outcomes,” TPR said.
The four groups are part of changes aimed at making master trusts “the gold standard in pension provision”, the regulator said. It wants to focus on ensuring DC savers receive value for money, and that DC pension schemes have robust investment strategies, high quality data, and strong at-retirement propositions.
A more targeted, focused approach
The regulator emphasised that it wanted to encourage “open and transparent dialogue” with pension schemes and providers to help them “capitalise on new opportunities”.
The test period found that “expert to expert” meetings led to “better regulatory outcomes” than the existing regime as it meant a more collaborative approach between master trusts and TPR, according to a report published today by the regulator.
“Through our expert-to-expert, risk-focused supervision approach, we will ensure we are asking the right questions at the right time to identify risks and challenges and support effective decision-making,” the report stated.
This approach would bring greater clarity on desired outcomes and the reasons for actions and requests, TPR said. It also promised to “to feedback and learn from each interaction”.
This also meant the regulator needed to make fewer data requests, reducing the regulatory burden on pension schemes. TPR plans to make greater use of the data it has to help it be “proactive” in identifying emerging risks.
TPR said the new approach to the DC sector reflected its shift to a prudential style of regulation, aiming to monitor system-wide risks as well as compliance on an individual scheme level.
Sam Grutchfield, TPR’s director of DC and master trust supervision, said: “The challenge of the last decade was getting people saving. The challenge of the next is to make sure pensions deliver real value for money.
“With a more strategic approach to supervision, we can make effective, scheme-specific interactions using real-time data to spot scheme-level and wider risks sooner.
“There will be fewer, but more targeted data requests, and more focused, expert-to-expert meetings, allowing us to influence key decision-making in real time improving regulatory compliance and saver outcomes.”
TPR’s full report .
