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Delivering value for savers: addressing the pensions challenge

Tuesday 23 May 2023

Nausicaa Delfas, CEO of The Pensions Regulator (TPR), gave a speech on delivering value for savers at Professional Pensions Live on 23 May 2023.


Thank you for inviting me here today.

I joined The Pensions Regulator as Chief Executive in April, and I am delighted to be leading the organisation in its critical work of protecting, supporting and expanding workplace pensions saving in the UK.

Now seven weeks in role, I welcome this early opportunity to speak with you about the challenges ahead, and how we would like to work with you to address them.

My vision for TPR is clear: to enhance the pensions system, to support innovation in the interests of savers as well as to protect savers’ money.

The pensions landscape is changing. The way we work is changing to reflect that.

Many of you in this room are at the forefront of delivering good saver outcomes and making workplace pensions work.

But there is more for us all to do.

We have published our Corporate Plan, which sets out our priorities for this year.

We are preparing for our new funding code, which will enhance the security of savers’ outcomes in defined benefit (DB) schemes. We are also laying the foundations for a significant increase in focus on the quality of outcomes in defined contribution (DC) schemes. There will not be time today to cover this all so I will focus on the latter — our increasing focus on the quality of outcomes in DC schemes.

In my first weeks in post, I have been meeting and speaking with many of you in this room and beyond. These discussions only bolster the view that there is a clear 'pensions challenge' — here and now.

The pensions challenge

As we continue the transition in the pensions landscape, and see the continued move from DB to DC, the risks associated with saving for retirement are shifting from the corporate to the individual. From the employer to the saver.

Since 2012, DC and hybrid memberships have increased from 2 million to 28 million, an increase of over 1,000%.

DB memberships have decreased from 13 million to 10 million, a 25% decrease.

With the addition of employer contributions and tax relief, pensions remain a critical savings vehicle for later life — so we all need to work to maximise saver returns on that combined investment.

And so today I am making a call for action — we need to work together to make the system the best it can be for savers.

We need to do this so that pensions deliver a pot that enables savers to have confidence, empowerment and security in later life.

We need to do this to support savers when they come to use their money. After 40 years of work, a time in which most people rarely if ever think about pensions, savers face an incredibly complex choice about how to support themselves into the future.

And we need to do this to make the process of decumulation clearer and more accessible, and to ensure we protect savers from scams, poor advice, and lost value.

We have created a new market. And the millions of people saving for retirement deserve that market to work for them.

Automatic enrolment has been a success. You in this room have made it a success. Together we have changed the face of saving: millions more people, from all walks of life, now save for the future.

Soon they will be joined by millions more. As government works to introduce measures proposed in the 2017 review, a whole raft of new savers — from age 18 (down from 22) and with lower levels of pay (through removal of the lower threshold of qualifying earnings) — will be brought into saving and we need to be ready to meet their needs.

However, the inbuilt inertia of automatic enrolment may not help to deliver value for savers alone.

Rightly, the volume of assets within DB pensions still requires our attention. But the volume of assets within DC and savers’ reliance on us to assure good outcomes draws a new regulatory focus.

The last decade’s challenge asked: ‘how do we build a nation of savers?’

The next is how do we ensure the system works well in delivering real value for money right the way through the pension saving journey?

So what are we doing to help to make this happen? And what do we ask of you?

Today I will cover — value for money, consolidation, governance and trusteeship, and the imperative to develop good value 'at retirement' solutions.

Value for money

We are committed to driving and embedding the concept of value for money in the pensions market. We will evolve our regulatory approach accordingly, and we will seek assurance from the industry that this is being delivered.

Currently, there is a lack of innovation and fluidity in the market. This is leading to significant investment risks in a rapidly growing market which needs to adapt. I have heard time and again, that competition has yet to be unleashed effectively and that employers lack an incentive to move providers. Employers should consider whether the provider is any good and move on if not — it seems to be very much like 'set and forget'. And when they do want to review, many struggle to know which scheme would be best for their staff.

Savers rely on the pension system working as best as it can over the lifetime of their saving.

That is why we are working with the Department for Work and Pensions (DWP) and the Financial Conduct Authority (FCA) to develop a value for money framework, which will equip those making decisions on behalf of savers, and those advising them, with the tools they need to enable a clear focus on delivering good pensions outcomes. Getting the advisory market to focus on this rather than costs is important. Many trustees rely heavily on their advisors, who are almost totally focussed on driving down cost — that has to change if we are to deliver real value, with advisors competing on that instead.

This framework will increase transparency and competition in the market and drive up standards across the board.

Properly instituted and given its rightful place at the centre of thinking, it should be a game changer.

Defining value for money in relation to DC pensions is complex. The outcome of a lifetime of saving won’t be properly understood until 30 years down the line by which time it would be too late for savers to discover the ‘product’ they have been using won’t deliver them the retirement they expected.

It is incumbent on those governing pensions to have a focus on what matters most. To ensure that all savers receive 'value for money by default'.

We need to make genuine changes to the system, not merely adjust some minor points. We need fundamental shifts in thinking and delivery.

We believe that standardised, consistent data disclosure is key to this. Our joint consultation with DWP and FCA has better outcomes for savers as its central objective and is looking to define the data that DC schemes will have to disclose in the future to demonstrate these are being achieved.

This will build on existing costs and charges measures, but critically will also seek to measure quality of service and investment performance. This will improve transparency, comparability, and competition.

We expect the VFM framework to generate a virtuous cycle of improvement and make DC pensions better value all round.

Thank you to those who responded to our consultation — we will be responding in the summer.

What we heard in that consultation confirmed our view, that trustees and schemes think they are delivering for savers if they drive down cost as far as possible.

Trustees need to consider if they are really acting in the interests of their members if they are driving down costs at the expense of returns.

Delivering holistic value for members is your fiduciary duty and all savers deserve value for their money.

That is why ahead of the implementation of the framework, we are conducting a value for members regulatory initiative looking at schemes with assets under management of less than £100 million.

Part of delivering real value is in having appropriate investment governance and decision-making with trustees considering a broad range of asset types.

Included in this, we need to consider productive finance.

We have worked closely with the Productive Finance Working Group and believe that investment in illiquid assets can have a role to play as part of a diversified portfolio.

For this to happen, trustees need to have a clear understanding of their liquidity requirements and have a liquidity plan in place.

As a regulator we do not and would not direct DC scheme investment but instead check and challenge that trustees are acting in members’ best interests.

Over time, we hope that the value for money framework will shine a light on performance and decision-making giving the tools for trustees to go for growth.

We know already that even with master trusts there is a wide variance in performance — looking at published data from the growth phase of a saver’s pension, 30 years to state pension, and taking a five-year cumulative return, the best performing master trust achieved annual returns before charges of 9.76%, the worst just 0.95%.

Yet on cost the difference would be slight but would be the determining factor for many employers and trustees to say whether they were doing a good job for their members.

We want industry to change its mindset. From prioritising low costs to putting value first. And by doing so to drive innovation in the interests of savers.


We can already see that schemes and the market are evolving. At TPR we will help to shape the market and drive improvements.

Consolidation continues at pace within DC and our position is clear: no saver should be in a poorly performing scheme that does not offer value for money. The choice is simple: can I compete with the biggest master trusts? If not, it is likely time to move your members to a better value scheme and leave the market.

Where we find poor performance, the message is clear: wind up and put your members into a better run scheme. Or we will consider all powers at our disposal.

Where there may be barriers or practical issues, we will work with the market to address them — for example where guaranteed annuity rates exist in DC schemes — and we will be crystal clear with all trustees about what is expected of them, and when.

And in DB, we are seeing the emergence of consolidator models which could provide scale efficiencies if they are delivered with appropriate protections.

Buy-out may be the answer for many DB schemes, as they will have seen their funding positions improve in recent times. But that market is likely to be constrained and some will prefer a different path. We think the market for innovation and new models in DB has been developing and brewing for some time, including the introduction of Superfunds, and we expect trustees will have more options available to them in the coming years.

While the issues faced by DB and DC schemes are different and there is further to go, the principles are similar. We want all schemes to have the quality of governance and risk management that savers should expect from them and where this is not possible, then trustees should ask themselves tough questions around consolidation.

A further component of value, and a potential driver of consolidation, is small pots — savers in their lifetime are likely to have many employers, and therefore many pension pots by the time they retire. The issues here are well rehearsed, and we are working with DWP to examine this. There are several options on the table to address this issue, including default consolidators and pot follows member. We need to crack the problem of value being eroded by multiple pots throughout a working life.

Governance and trusteeship

Turning to the need for schemes to be well run and well governed.

I appreciate many of you in this room are running highly efficient, saver-centric organisations. But this is not universally the case.

Savers deserve more than minimum standards — we are unapologetic about the standards we expect from trustees — savers would expect the people looking after what is for many their entire retirement savings to be appropriately skilled and qualified.

We should all do more to ensure that every trustee body has an appropriate level of skill and professionalism.

We are aware of the huge amount of value that lay trustees deliver — we want to retain and capture all of that, while making sure they are supported as they need to be as the role of being a trustee becomes ever more complex.

In a marketplace of fewer, larger, and eventually systemically important entities, trustees must assure themselves and regulators that they are acting in members’ best interests.  That means that those running schemes will need to be highly qualified and able to balance competing priorities to deliver for savers. They will need the right data and advice to challenge themselves and strive for more across all areas of their business. And they will need to be able to respond swiftly to risks, as demonstrated in the liability driven investment event.

There is also a pressing need to address equality, diversity and inclusion (EDI) and environmental social governance (ESG) issues. We believe that diverse and inclusive trustee boards, those with different skills and perspectives, make better decisions for savers. And that trustees that look ahead to manage the risks and opportunities that climate change presents will deliver the best long-term outcomes.

At TPR we have appointed new specialists in both EDI and ESG, and they have been actively engaging to promote, explain and embed the benefits of pursuing scheme decisions that benefit all savers.

This fundamentally speaks to the culture and skills of trusteeship.

There is a renewed need to think about investment governance, to target growth, to make long-term decisions for savers. We are asking you to consider: ‘Is our offering the right one’? These are tough, searching considerations, but absolutely the right questions to be asking as we address the pensions challenge.

In order to achieve all of the ambitions here, fundamentally we believe that every trustee body should include someone who meets professional standards.

There is work for us to do to examine the current trustee landscape and ensure we have a full understanding of the current players.

This work will include looking at new ways for us to identify trustees, for example through a registration system, so that we have consistent data to ensure that we know exactly who is representing which schemes. Increasing professional representation will not happen overnight.

We acknowledge there are capacity challenges, and this work goes hand in hand with our work to encourage consolidation of the market.

The detail here will be the subject of future conversations and deserves more attention.

Suffice to say that we will be pursuing stronger adherence to the principles and policies that have already been laid.

'At retirement' solutions

I would now like to turn to the other aspect of 'the pensions challenge' — when savers come to access their pensions savings at retirement and are faced with complex decisions and choices about how to support themselves for the rest of their lives.

This is the point at which savers can find themselves vulnerable to poor advice, loss of value or even fraud. Those with a pot of say £50,000 need clear and accessible options to choose from, without the need to pay £1,000s of their pot for advice.

It may be that inertia-based saving requires a different solution at retirement and that reliance on engagement and good decision-making by all savers may not be the best answer.

We are currently working with DWP to scope a set of reforms which will mean that savers are supported to make good decisions and secure the best retirement for their personal circumstances.

Our aim is that schemes either offer, facilitate or signpost high quality decumulation products and services so that right across the journey from saving to spending — and sometimes a little of both at the same time — savers get good value.

We encourage schemes to innovate to deliver this.

TPR evolution

Just as the market evolves, so does TPR.

I have been struck by the commitment of TPR staff to our mission to deliver value for savers. We will be building on this, to ensure we have the skills and capabilities needed for the future.

We are investing to become more data-led, digitally enabled, to be more efficient and effective and have greater reach over our regulated community.

And we are working closely with our regulatory partners, here and internationally, to achieve good outcomes for savers.


So, to conclude.

Today I have focused on how we, working with you and others, are striving to enhance the pensions system and drive innovation, and protect savers’ money.

But one thing is clear. The pace of change in pensions shows no sign of slowing, and so we must all adapt.

Adapt not only to the challenges of today’s economic climate, but to more fundamental shifts that we are witnessing and that are changing the face of pensions for the people who matter most — the savers.

We need to make the system the best it can be for savers and deliver value for money by default.

I look forward to working you to deliver value for savers throughout their pensions journey.

Thank you.

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