TPR acts to protect savers as new figures show significant shift to DC
Friday 27 January 2017
Total memberships in defined contribution (DC) pension schemes have for the first time overtaken defined benefit (DB) schemes, a report published today by The Pensions Regulator (TPR) reveals.
TPR’s annual DC Trust report illustrates the impact of automatic enrolment with DC schemes becoming the dominant form of pensions provision. There are now around 14.8 million memberships in DC schemes compared with 11.7 million in DB arrangements.
Andrew Warwick-Thompson, Executive Director for Regulatory Policy, said: “We have now passed a significant point in UK private sector pensions provision with 55% of all private sector pension scheme members and 85% of active members being participants in DC schemes.
“This transformation is the direct result of the success of automatic enrolment (AE) which has seen more than 7 million workers join a pension scheme for the first time.
“Master trusts have played a major role in the success of AE and so the introduction of a mandatory authorisation and supervision regime via the Pension Schemes Bill is vital. We need to ensure a level playing field for the protection of consumers investing in contract-based and trust-based multi-employer pension plans, and it is clear that market forces alone would not have achieved this outcome.”
There are now 34,500 DC schemes, a fall of only 2% on last year. Most of these, 32,000 schemes, are ‘micro schemes’ with between 2 and 11 members, and of these around 23,000 are ‘relevant small schemes’ (commonly called SSAS).
Relevant small schemes are subject to minimal legislative duties, compared to those applicable to larger schemes. Of most concern to TPR is that of the 750 DC schemes being used for the purposes of AE, 360 fall into this ‘micro scheme’ category.
Mr Warwick-Thompson added: “Our concerns are rising about the fragmentation of DC provision and the persistence of a tail of sub-scale schemes. In our opinion, these pose an unacceptable risk to consumer protection. The consolidation trend we have observed and welcomed in previous years has slowed.
“We strongly believe that it is unacceptable to have two classes of DC pension saver – those that benefit from the premium of scale and good governance and administration, and those that do not. Our approach to resolving this issue will be threefold.
“We will launch details of the implementation phase of our 21st Century Trustee initiative later this year, with a clear objective to raise standards of trusteeship and take regulatory action against those trustees who persist in failing to meet the required level of competence.
“Through the introduction and implementation of the new authorisation and supervision regime for master trusts we will seek to create a secure, scalable and value for money cornerstone of the multi-employer DC savings market. We recognise there are some barriers to consolidation in the DC market, such as the requirement for actuarial certificates, and so we support the Government’s recent call for evidence on ways of removing these barriers.”
Other key findings of the DC Trust report include:
- DC scheme volumes are stabilising, with a reduction of just 2% in the past year, though the number of schemes with 12-plus members has declined by 8%
- in 2009 only 66% of schemes had members aged over 50 – this is now 97%
- there are 87 master trusts with DC members registered with TPR
- membership has increased 42% since 2016, and by over 300% since 2009
- 56% of all private sector workplace pension members are in DC schemes, and almost 90% of all those currently saving are saving into a DC scheme
- 95% of members are in schemes being used for automatic enrolment.
- 730 schemes are being used for AE, up from 450 last year – almost half of these schemes have fewer than 12 members.
- The information in this report is based on data provided by schemes on returns we issued from July to December 2016 and related to the levy year 2015 - 2016 or earlier. Therefore the figures may not yet reflect all changes in DC memberships (including from AE) from October 2012 through to December 2016.
- The scheme return is how we collect information about occupational schemes. DC schemes with 12 or more members complete a scheme return annually and schemes with 2 to 11 members currently complete once every three years. Single member schemes are not required to complete a return.
- This report can be read in conjunction with TPR’s AE publications including its monthly declaration of compliance reports, which provide the latest membership information as a result of the reforms.
- Single person SSAS schemes are not regulated by the FCA and are not registrable with TPR, which is why TPR strongly urges consumers who wish to control their pension scheme investments to instead use self-invested personal pensions (SIPPS) offered by FCA-authorised providers, and in all circumstances to take advice from qualified financial advisers authorised by the FCA.
- The 11.7 million refers to members in the private sector. Figures for public service pension schemes are in TPR’s corporate plan.
- Details of the Government’s recent call for evidence on removing some of the barriers to consolidation, such as actuarial certificates can be found on the GOV.UK website.
- TPR is the regulator of work-based pension schemes in the UK. Our statutory objectives are: to protect members’ benefits; to reduce the risk of calls on the Pension Protection Fund (PPF); to promote, and to improve understanding of, the good administration of work-based pension schemes; to maximise employer compliance with automatic enrolment duties; and to minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of the regulator’s functions under Part 3 of the Pensions Act 2004 only).
Tim Marks 01273 662092