Pension schemes should not wait for all regulations to be finalised before acting on ongoing reforms, according to the Pensions Regulator (TPR).
Speaking at the Pensions Expert Annual Conference this week, Richard Knox, the regulator’s executive director of strategy, policy and analysis, said the direction of policy was clear enough for pension schemes and trustee boards to begin preparing for major changes.
In his first address to the industry since joining TPR in February this year, Knox said: “Those who get started now – and engage with us on the process – will have a head start.”
“The policy intent is clear, and there is plenty you can do now on governance, data, value and retirement,” he added.
This applied to major reforms such as the Value for Money framework and guided retirement. Both will place significant demands on trustee boards, but Knox emphasised that this did not mean pension schemes needed to wait for all regulations to be finalised.
He also explained that “judgement matters more, not less” as regulations continue to be developed.
“Trustees will have more information, more options, but harder decisions,” he continued, “and regulation cannot make those decisions for you.
“The fundamental responsibility of trustees remains the same: to exercise good judgement in the interests of members. The reforms give you better tools for that job. They don’t remove the need to do it.”
Preparing for the new environment
Knox also used his address to highlight the importance of strong governance structures as reforms take shape.
Trustees should “review whether their board has the sufficient competencies to govern their scheme effectively in a fast-changing environment”, he said.
“The range of decisions is widening because of reform and new options, and having expertise on paper is not enough if the board doesn’t have the time or capacity to use it,” Knox explained.
Trustee boards should also be able to challenge their advisers and sponsors on choices and recommendations, he said, to be able to explain why decisions were made. On top of this, boards should also look “beyond service level agreements” to understand the actual services members receive.
How to prepare for new rules
As Richard Knox outlined in his speech, there are a number of things trustee boards can do to get ready for some of the major reforms coming in the next few years.
On Value for Money (VfM), Knox encouraged trustees to review data and address issues, improve member services, challenge advisers, and plan for how to handle VfM reporting.
On guided retirement, Knox highlighted the importance of segmenting a scheme’s membership, reviewing retirement journeys, assessing product options, and strengthening governance.
