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Supervision enables us to have contact with the trustees, managers and sponsoring employers of pension schemes.

It helps us to:

  • monitor schemes closely
  • clearly outline what we expect
  • act quickly where we have concerns

The actions we take will depend on the risks that we identify.

Regulatory initiatives and applications

Regulatory initiatives involve us contacting a large number of schemes about a particular risk and engaging with those that have not adequately addressed the risks we identified.

We seek assurances from the schemes about how they will assess the risk, and if their response does not adequately address it we will engage directly with the scheme or other stakeholders to do so.

We also deal with applications, including those for clearance and regulated apportionment arrangements. We review all applications we receive and respond promptly, recognising commercial timescales of the underlying transactions.

Relationship Supervision

Relationship Supervision allows us to extend our reach across the market and develop relationships with strategically important schemes.

It enables us to monitor schemes more closely, outline our expectations, and prevent problems from developing in the first place. Supervision involves building strong relationships with schemes regardless of whether they trigger our traditional risk indicators.

We increase our engagement with defined benefit (DB) schemes, defined contribution schemes (including master trusts), public service pensions, DB superfunds and scheme administrators using a range of criteria to select them. These criteria include:

  • size
  • risk
  • previous interactions with us

We assess the risks and strengths of the scheme by reviewing its management and governance, systems and processes, IT and infrastructure, control functions, administration and member communications and, for DB schemes, funding. We may not need to look at all these areas for every scheme.

We set out our findings in a supervisory report and ask the scheme to create an action plan to address the recommendations we make. It’s key to our relationship supervision approach that we build strong, ongoing, two-way relationships with schemes and enables us to outline our expectations and prevent problems from developing in the first place. Where necessary, we refer significant concerns to our enforcement team.

We supervise authorised master trusts to ensure we remain satisfied that over time they continue to meet the authorisation criteria. We develop open and honest relationships throughout our supervisory cycle to help maintain a two-way channel of information sharing and to enable us to intervene where material risks and issues are identified. This supervisory activity helps to improve the standards in how workplace pensions are managed and helps to better protect savers.

As part of our Corporate Strategy, we are increasing our engagement with pension scheme administrators who play a critical role in ensuring good outcomes for savers, and in securing confidence in the pensions system. Although we do not regulate administrators directly, we are developing strong and open relationships with the largest and most strategically important ones, with direct engagement on key focus areas, such as data quality and member engagement. This enables us to gain a better understanding of the sector, identify areas where change would improve saver outcomes and ultimately raise standards within the industry.

A superfund is a defined benefit pension scheme established to accept bulk transfers of assets and liabilities from other DB schemes. The market for DB superfunds, consolidation vehicles and other business models facilitating risk-transfer is developing. We have published guidance which sets out the standards we expect to be met. We assess prospective superfunds and business models to ensure our expectations are met. We supervise on an ongoing basis any superfund which has met our assessment expectations, to ensure that we remain satisfied.

Case study: First UK Bus

First UK Bus is one of the largest bus operators in the UK, with a fifth of the market outside London. Its defined benefit (DB) pension scheme had 4032 active, 12773 deferred and 9124 pensioner members, assets of £1.24 billion and liabilities of £1.51 billion on 5 April 2019.

We began our supervisory relationship in November 2019 and looked at the scheme’s governance and administration processes, including its funding and risk management approach. Since the beginning of our engagement we have had a number of face-to-face meetings with the trustees, many teleconference calls, and they also receive our regular stakeholder communications updates. 

Our involvement coincided with the scheme’s triennial valuation, where a new recovery plan was agreed that will lead to the scheme being fully funded within the next 10 years. Although we had previously had some communication with the trustees, the supervisory relationship marked a new way of interacting, which has been overwhelmingly positive for engagement and outcomes. This can be seen not only in the improved funding of the scheme – the employer has agreed to increase deficit repair contributions from £18 million to £33 million per year – but also in the way scheme members relate to their pension. The trustees now send members an engaging and accessible newsletter, giving details of the scheme’s financial status and including clear examples of how small increases in contributions could make a huge difference to their retirement.

The two co-chairs of the trustee demonstrated a real desire to learn from the supervisory relationship, describing it as positive and helpful. They have embraced a number of trustee specific training exercises, one of which relates to Environmental and Social Governance (a key area of focus for TPR).

Events Supervision

Events Supervision is where we respond quickly to reports of events which pose increased risks to schemes. This will generally involve events that affect the employer covenant supporting DB schemes, particularly corporate transactions or corporate distress.

We assess the impact of an event on a particular scheme against our statutory objectives. Where we get involved, it is initially through the trustees as they are the first line of defence for savers. If appropriate, we will engage directly with trustees, employers and other stakeholders to protect the interests of members.

We identify schemes facing heightened risks and contact the trustees quickly to look at key areas such as:

  • how they are assessing the likely impact of an event on the scheme
  • whether they are getting the right information and advice
  • what protections they already have in place and if they can be improved

We establish whether the trustees have the right skills, experience and advice to address the particular issue they are facing and assess the level of risk to members. Some trustees will have very little experience of certain events so they benefit from our experience, but we are not a substitute for effective trusteeship, nor taking appropriate advice.

Where required, we will engage more directly in the situation faced by the scheme. Our team members have significant experience of corporate transactions and restructuring and will engage with relevant stakeholders to ensure the scheme’s position is appropriately protected.

Case study

This defined benefit pension scheme had around 1,600 members and a deficit of approximately £329 million on a buyout basis. The sponsoring employer’s credit rating was downgraded, the employer issued a profit warning and the share price dropped.

At this point we had already begun engaging with the scheme to ensure that the trustee was actively monitoring the employer covenant and taking the right steps to protect the scheme. During our initial engagement, we discovered that many of the trustee directors were newly or recently appointed and that half the board held senior management positions with the employer, including the chair of trustees who was the chief HR officer. This pointed to potential conflict of interest. We had concerns about the strength of the employer covenant, whether the investment strategy was supportable and appropriate, and that the scheme sat behind significant secured debt and had no protection in insolvency.

Our aim was to help the trustee secure an improved position on any potential insolvency, reduce the scheme’s investment risk, and address governance and risk management issues which we felt could be improved through the appointment of an independent trustee (IT) with experience of stressed situations. We also wanted to ensure that the current assessment of the employer covenant strength was reflected in the scheme’s upcoming triennial valuation.

As a result of our engagement, the chair of trustees resigned and was replaced by an IT, and the trustee board has been downsized. We also encouraged the implementation of an information sharing protocol between the trustee and the employer, which has now been put in place. This prompted regular meetings between the chair of trustees and the employer’s senior financial managers.

Following our engagement with the trustee and employer, the scheme’s investment strategy has been progressively de-risked and its triennial valuation has been completed based on an accurate assessment of the covenant. Deficit repair contributions have increased more than 50% per year, giving rise to a recovery plan of just over six years. In addition, the scheme now benefits from security over key employer-owned assets, strengthening the scheme's position in the event of an insolvency.