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Video transcript: TPR's annual DC trust report

Interviewer: Andrew, what does the report tell us about the overall DC market?

Andrew Warwick-Thompson: I think what’s really interesting about it is that we have finally met the big pivot that everyone has been expecting. We’ve now got 55% of all pension scheme members in the private sector in DC schemes. And in fact if we look at the number of active members, 85% of all active members in occupational members are now in DC schemes. So we have finally tipped that balance between DC and DB and I think that we can say finally that we really do need to start regarding DB as a closed book of business which is in run off. We should start talking about it in those terms.

Interviewer: What impact has automatic enrolment had on the DC market and presumably on master trusts growing as fast as they have?

Andrew: I think it’s mainly to do with AE. We have seen 7 million people, more than 7 million people now automatically enrolled into pension schemes for the first time. And so it's the success of AE that's driven those numbers and it’s clear that DC occupational schemes and multi-employer contract-based schemes have been the preferred solution of employers. So that's why we have seen the explosion, particularly in the active memberships of DC schemes.

Interviewer: Some positive stuff there but there are still nevertheless thousands, tens of thousands, of very small schemes. Presumably you are concerned about the members of those schemes, what are you doing to address that?

Andrew: We are very concerned about it because it is very clear from the research that we have done over many years that sub-scale schemes at the smaller end of the market tend to suffer from poor governance and administration standards. And we’ve now got this figure of 34,500 as a total of DC schemes. But a total of that at 32,000 are micro schemes, that’s schemes between 2 and 11 members, and of those 23,000 are small relevant schemes which we also refer to as SSAS. So we've got this huge long tail of sub-scale, probably unsustainable schemes. And we are very concerned that we don’t end up in a situation where we have two classes of consumer – those that are in larger schemes including master trusts that benefit from scale and really good quality governance and administration – and those that completely lose that premium. We are looking at creating an underclass of DC members which would be an unforgivable thing to allow to happen.

Interviewer: So finally, isn’t consolidation, as the Minister said, the nirvana of everything, when it comes to sorting out these small schemes?

Andrew: Yes, I think the Minister has hit the nail on the head there. One of the features of the occupational pension schemes market in the UK whether you are looking at DB or DC is that it is this great fragmented amorphous mass of inefficiency with a small number of big well-run schemes and this enormous tail of probably unsustainable not very well-run schemes. And that has happened as a result of successive attempts to raise standards where those people who are kind of prepared to do it and have the where-with-all to do it have heard the call and have raised their standards, but those that can’t just get left behind. And that’s resulting I think in significant risk to consumers in relation to the security of their assets and the security of the outcomes they may receive from their pension schemes.

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