What our move towards risk-based regulation means for industry and savers
We want all savers to get good outcomes from pensions.
For that to happen we need to make sure that defined contribution schemes provide value for money, from joining a scheme right the way through retirement. We need to make sure that all defined benefit schemes secure their future – whether that’s an end game or ongoing offer. And across all scheme types we have trustees making the right decisions for their savers, powered by good quality data.
To make that vision a reality, in a complex and changing pensions world we must change the way we work as a regulator, addressing key risks wherever they arise. To do that we must foster greater collaboration and innovation with the industry.
This week, a number of TPR staff joined delegates at the PLSA annual conference in Liverpool to hear first-hand what they felt were the issues and opportunities that face us all.
While at the conference, we set out two new regulatory approaches that go to the heart of our new ambition to be more market-facing and outcome-focused.
Engaging with professional trustee firms
The dramatic growth in the use of professional trustees is remarkable and cannot be ignored. Industry data suggests the largest professional trustee firms now account for £1.2tn of defined benefit scheme assets under management (AUM). Just five account for 90% of that defined benefit AUM. Sole trusteeship is becoming more and more common with schemes with less than £100m AUM. 150 appointments have been made in the last year alone.
This rapid change brings new opportunities to raise standards but also new risks in detaching decision making from the membership, and potential conflicts of interest.
That is why before Christmas, we will be establishing relationships with the 10 largest trustee firms. This is a significant expansion of our engagement with this incredibly important sector. The time is clearly right to do so.
We want to understand good practice but also to identify risks in areas such as ownership structure, skills and experience, diversity, equality and inclusion, conflicts of Interests, and fees.
We will be inviting views on the areas of focus as part of our stakeholder engagement work. And once this initial ‘discovery phase’ is complete, we will feed any insights back into the market, to highlight any areas of concern, but also to shape our approach and expectations, and, if necessary, tackle risks in the appropriate way.
Embracing innovation and providing schemes with certainty
As a regulator, our mission is not just to protect savers from harm, but also to enhance the system and innovate in savers’ interests.
That is why we are setting up an innovation design team to help the industry test new models and approaches from a regulatory standpoint.
We acknowledge that when designing new models and approaches, it is challenging for the industry to understand whether ideas meet TPR’s expectations, and if they might breach regulations.
That’s why we have launched an innovation hub – to review industry ideas at an early stage and to provide guidance on the approach the regulator would likely take to that innovation.
We are encouraging industry to come and speak to us early with their ideas, to tell us about the problems they are trying to solve for their members and how they are going about innovation.
We have been clear for a long time that we are supportive of innovation, but it must be in the interests of savers. Savers should not pay the price for failed innovation.
We will provide guardrails for industry, so that you can innovate, but will do so with your members’ interests front and centre, and safely.
In engaging with you on innovation, we will ask you about your processes, what sort of research you have done, and how have you mapped the potential consequences to understand how your regulatory proposition might fit within the regulatory regime, and whether amendments to that regime will be needed.
The future of our risk-based approach
We are seizing today’s unique opportunity to help create a pensions system of fewer, larger, well-run schemes that work for everyone. We need your help to get this right.
Our greater engagement with industry means we can gather valuable evidence and insight to better understand the full risk landscape and prioritise our efforts based on harm or opportunities for the saver. While we will have a suite of regulatory tools, we will use them differently depending on the risk or opportunity we face.
Together we will not only work to tackle risks wherever we find them but also foster product innovation – ultimately delivering better outcomes for savers.
Nausicaa Delfas
Chief Executive
