TPR boss outlines consolidation drive

Speaking at an industry event this week, TPR chief executive Nausicaa Delfas outlined how the evolution of the pensions sector towards “fewer, larger pension schemes” was of benefit to savers and would be encouraged by the regulator.

“We are clear that we will help to drive consolidation in savers’ interests so that only schemes that deliver good outcomes remain,” she said.

Delfas argued that the model of one employer to one scheme was “becoming a relic” as master trusts were starting to dominate the defined contribution (DC) sector and consolidation options were proliferating for defined benefit (DB) schemes.

While there were still approximately 1,200 DC schemes in the market, Delfas said, the number of separate schemes had shrunk by roughly two thirds over the past 10 years, with master trusts now accounting for 90% of trust0based DC members. The number of DB schemes was also shrinking as more of them moved towards insurance buyouts.

Delfas said: “We believe that this consolidation has the potential to deliver better outcomes for savers: higher standards, scale efficiencies, tighter regulatory grip.”

She added: “We are in a moment of change – heading towards fewer, larger pensions schemes with new risks and opportunities for savers and the economy as a whole. It is incumbent on us all to change with the market if we are truly to protect, enhance and innovate in savers’ interests.”

Governance standards

Delfas highlighted that TPR research had “consistently shown” that larger schemes were more likely to have better governance processes and structures than smaller schemes, from data management frameworks to endgame plans.

Consolidation presents new challenges and requirements for trustees, she said, including the use of more data to inform strategic decisions and understand the options available. There are also significantly different skills required for DB schemes compared to DC schemes, and trustee boards need to reflect this.

“Making good investment decisions and employing sophisticated investment governance practices remain essential,” Delfas continued.

“We need all trustee boards to be suitably skilled to invest in diversified assets that deliver good outcomes for savers. Not because we favour one asset class over another, but because all schemes should have the knowledge and experience to be able to consider investments in asset classes that might deliver better outcomes for savers.”

Productive finance

Such asset classes included the “productive assets” targeted by the government’s Mansion House proposals, and Delfas said these could play an important role in diversified portfolios – as long as trustees have sufficient expertise and the right governance structures in place.

“It’s not our job to tell trustees how to invest people’s pensions,” she said, “but it is our job to make sure they focus squarely on delivering value and have the right skills and expertise to consider all asset classes including the ability to challenge the advice and offerings put in front of them.”

The government has proposed disclosure requirements for pension schemes to report on their allocations to UK assets as part of its drive to encourage greater investment in the UK economy.

However, in her speech Delfas said the regulator was not seeking “disclosure for disclosure’s sake”, but instead it wanted to “encourage genuine change in how schemes operate” for the benefit of their members. She cited new reporting requirements and strategy statements that DB schemes will have to produce from 22 September this year.

TPR will use data from these enhanced scheme disclosures to “constructively challenge trustee decision-making so that savers’ interests are really being met”, she said, with the aim of improving standards and ensuring that risks are managed and opportunities are maximised.

“Disclosure is here to stay and should be seen not as a burden but as an opportunity,” Delfas said.

The new-look TPR

The push for consolidation is also a factor in TPR’s planned restructure, scheduled to be implemented from April this year.

At the end of February, the regulator announced that it would overhaul its structure into three units: regulatory compliance, market oversight, and strategy, policy and analysis.

TPR has already doubled the number of investment consultants it employs, Delfas said, and is actively collaborating with other regulators such as the Financial Conduct Authority to improve the cohesiveness of the regulatory system.

TPR will be “more proactive and assertive” in its work, Delfas explained, becoming more “market-focused” and better connected to pensions markets and the wider financial services system.

“Though [these] are internal structural changes, I expect the industry to also see a gear-change in how we interact with you, and in our effectiveness over time,” Delfas said.

“We will increase our use of data, digital and technology to identify where we need to focus our efforts. We will develop multi-disciplinary teams that can focus on the themes and the risks we are addressing.

“We will learn from every interaction we have and use that learning to update our risk analysis and our regulatory approaches. And we will develop quicker routes to enforcement to ensure that bad actors can’t threaten peoples’ pots or the UK market.”