The Pensions Regulator (TPR) has urged master trust trustees to begin preparing for proposed new scale requirements under the Pension Schemes Bill, warning schemes to review their future development plans and operational readiness well ahead of implementation.
It comes as the Department for Work and Pensions has published its high-level plan for a scale test for defined contribution (DC) providers as it seeks to consolidate the sector into “megafunds” of at least £25bn in size.
In a statement published today, the regulator set out principles to help trustees evaluate whether their schemes are likely to meet the proposed scale thresholds and how they should evidence future growth.
The Pension Schemes Bill includes a requirement for DC master trusts and other multi-employer providers to hold at least £25bn in assets under management within a main scale default arrangement by 2030, alongside a transition pathway for schemes that require more time to reach scale.
TPR said trustees should start assessing how their scheme could grow, including through both organic member growth and potential consolidation activity.
Prepare early, regulator urges
Although the scale requirement is not expected to kick in until 2030, Richard Knox, executive director for strategy, policy and analysis at TPR, said: “By preparing early, trustees can make informed decisions that support long-term value for their savers.”
The regulator said trustees should begin considering future growth prospects, including analysis of organic and potential inorganic growth, such as acquisitions. This analysis should also include demographic factors, contribution flows, and investment assumptions.
TPR also highlighted that providers should explore whether their governance structures, systems, and processes are appropriate to support growth and continued operation at scale.
It also encouraged trustees to consider how their investment capability and governance align with wider reforms in the bill.
TPR said employers and consultants should ensure they are focusing on areas such as continued compliance with auto-enrolment obligations, as well as expectations that will come in through the future Value for Money framework.
It also highlighted areas including governance and operational resilience, preparedness for the proposed scale requirements, and quality of administration and transition processes as key areas for employers and consultants to consider.
‘Self-fulfilling prophecy’
TPR warned employers and advisers against prematurely assuming that master trusts currently below the proposed scale threshold will be unable to meet the requirements, noting there is significant momentum and growth potential across the sector.
Ruari Grant, head of policy at TPT Retirement Solutions, said: “The TPR scale guidance provides some much-needed clarity within the master trust market.
Over the past year, the scale test has begun to become a self-fulfilling prophecy, and we hope this will provide some reassurance to consultants and the wider market. For schemes pursuing the transition pathway, this guidance on credible growth plans should also help inform those crucial regulatory conversations in the years leading up to 2030.”
