The Pensions Regulator (TPR) will shift approach when it comes to the supervision of DC master trusts, in a bid to identify market and saver risks sooner.
This new regulatory approach will see DC master trusts split into four segments for supervision: monoline master trusts, commercial master trusts, non-commercial master trusts and collective DC schemes and single and connected employer DC schemes.
Monoline master trusts will include the large AE providers such as Nest, that may be perceived as carry more significant market risk, should problems occur. Commercial master trusts include those that are part of a wider insurance offering.
Each segment will have tiers of engagement based on the specific risks they present to market and saver outcomes.
As part of the new regime, every scheme in the monoline and commercial segments will be allocated a dedicated multi-disciplinary team of named individuals with expertise in financial analysis, business strategy, investment and governance.
The government has stated its intention to drive further consolidation in the DC pensions sector. Many of these master trusts have grown rapidly in recent years, and there have been concerns that the regulatory approach needs to adapt to deal with these larger entities.
All 33 of the UK’s DC master trusts are authorised by the TPR. The regulator said that after a 12 months review its approach was changing to make master trusts the “gold standard” in pension provision.
The master trust authorisation framework was set up in 2019 to make sure businesses governing the DC pensions are well run, well governed and financially solvent. Today nine in 10 trust-based DC pensions are in master trusts.
While driving high levels of compliance will still be a priority, TPR is also seeking open and transparent dialogue to help schemes capitalise on new opportunities which benefit savers.
This new approach followed a 14-week pilot, working with three large master trusts. As a result of this pilot TPR concluded that:
- targeted, expert-to-expert meetings led to better regulatory outcomes, facilitated more open and constructive conversations and saw problems solved sooner
- the new approach meant TPR could be clearer with schemes about its expectations, leading to more robust strategic decision-making, and its interactions gave better insights into scheme-specific and sector-wide risks and challenges
- the more strategic approach could see fewer and less frequent, but more targeted data requests to schemes cutting regulatory burden
TPR said this is an example of its shift to a more prudential style of regulation, focusing on addressing risks not just at an individual scheme level, but also those risks which impact the market and wider financial ecosystem.
TPR’s director of DC and master trust supervision Sam Grutchfield says “The challenge of the last decade was getting people saving. The challenge of the next is to make sure pensions deliver real value for money.
“With a more strategic approach to supervision, we can make effective, scheme-specific interactions using real-time data to spot scheme-level and wider risks sooner.
“There will be fewer, but more targeted data requests, and more focused, expert-to-expert meetings, allowing us to influence key decision-making in real time improving regulatory compliance and saver outcomes.”
