The Mansion House consolidation drive is an acceleration towards fewer, bigger, better-governed schemes not a change in direction says The Pensions Regulator.
Sam Grutchfield, interim director of master trusts and DC supervision at the Pensions Regulator said that even on current plans many master trusts were set to meet the discussed £25bn thresholds, some were on course for £50bn while others were only a couple of mergers away from that level of assets.
He was speaking at the Corporate Adviser Master Trust and GPP conference in London this week.
Given consolidation and as part of a reorganisation, TPR is equipping itself with the flexibility to shift to a more Prudential Regulatory Authority style of regulation, given the systemic risk of these larger schemes.
He said: “Mansion House shuffled the cards slightly, although more in the same direction that we were hoping for and preparing for. “We were already talking about fewer, bigger, well run, well governed, schemes and we are now perhaps talking about even bigger, even fewer schemes and even faster change but still well governed and well run.”
Evolving approach to Master Trusts
He said TPR is now moving away from a “compliance-based approach to a risk-based approach.” The legislation brought in in 2018 was very much about bringing order to an unruly, unregulated market, getting master trusts over the line for authorisation, helping others exit and protecting members. Each scheme was addressed individually.
“Now as the market has shifted dramatically with shifts in scale, we need to find a flexible way to pool resources and give more attention to larger schemes and schemes which have more impact in terms of risks to the market.”
“It needs to be flexible enough so that if a scheme is at risk of causing some kind of larger impact to the economy or to consumer confidence we can allocate more resources.”
“We are looking at a model which allows us to group schemes into four segments by different characteristics and a system of tiers overlaying that, allowing us to pivot to a more prudential form of regulation if we need to, prepping for a PRA approach if needed.”
Impact of thesholds
Addressing the thresholds being discussed in the consultation, he added: “Personally I don’t think it is doing anything that wasn’t going to happen. It may happen faster. But there is no mandate yet. It is a consultation. They are indicative figures.”
He says that on the current TPR forecast, not reflecting Mansion House, six master trusts reach £25bn by 2030 and two will reach 50bn. Out to 2035, there are eleven at £25bn of which five reach £50bn. “But below those thresholds you still have schemes where a couple of mergers would bring a lot more above that threshold,” he added.
Currently, there are 34. Five are in the merger process and about to leave the market, and another is expected to do so leaving 28 in the next year or two, getting nearer the oft-discussed 20 scheme number.
He added: “Personally, it feels like the market is doing this anyway. It’s a work in progress. But if it ended up being three schemes it won’t be done. It is not going to be as worrying as people might think.”
What of innovators?
He noted that it is difficult to square encouraging innovation with driving consolidation. “How would you get an innovative tech savvy person with a load of capital to shake up the pensions market. I like the idea of giving time enough to get up to scale. It would have to be a reasonable period. We have authorised schemes with no track record so that is not an obstacle from our point of view. We can look at their plans and
assure ourselves they are adequate. We are not going to an obstacle to that.”