TPT Retirement Solutions is urging government to improve governance of professional trustees, while introducing greater scrutiny of the adviser and consultancy market.
The workplace pension provider said both are needed as consolidation in the DC sector accelerates.
These comments were included in TPT’s response to the Department for Work and Pensions’ (DWP) consultation on trusteeship.
TPT says that as government policy speeds up DC consolidation, governance frameworks need to evolve to deal with the scale, complexity and emerging risks this creates, particularly with the creation of larger, and often commercially-owned, ‘megafunds’.
The provider says it is concerned that growing commercial pressures within the professional trustee market risk undermining independence. It highlights potential issues around private equity ownership structures, cross-selling bundled services, adviser-trustee dependencies and restrictive tendering practices are increasingly prevalent.
To deal with these it says the DWP needs to put in place clearer regulatory controls, including restrictions on self-appointment, requirements for independent tender processes and limits on bundled commercial arrangements.
It also highlights the need for greater scrutiny of the wider governance ecosystem, particularly the largely unregulated adviser and consultancy market It says there are often close commercial dynamics between advisers and trustee firms.
TPT says it supports a balanced approach to reform, adding that professional trustees make a vital contribution to good governance standards. However it adds it was also important to also recognise the member voice.
It adds that any reforms should preserve the distinctive contribution that lay trustees make to pension scheme governance, in terms of the breadth of professional and lived experience. It says they can provide a closer understanding of the employer and membership, which can be difficult to achieve in certain structures, for example e.g. master trusts.
It adds that as schemes consolidate member panels and other channels to facilitate member and employer representation will need to take an increasing role to ensure a balanced and informed approach is taken to decision-making.
TPT notes that the rise of megafunds will heighten systemic and conflict risks. Trustee independence from scheme funders will become increasingly important, alongside stronger technical capability and clearer mechanisms for embedding member perspectives in decision-making.
TPT Retirement Solutions head of policy Ruari Grant says: “Trusteeship is one of our longest standing and effective governance models, and this consultation addresses the key evolutions in the market to make sure it remains the model that scheme members can have faith in.
“Consolidation has the potential to strengthen outcomes for savers, but it also increases the importance of robust and independent governance, as well as the expertise to manage ever larger and more complex strategies.
“As schemes grow, and as those providing trusteeship move from an independent, non-profit basis to a more commercial one, policymakers must ensure the right safeguards are in place to make sure trustees are able to act in the best interests of their members, without influence from either commercial providers or trustee firms.”
