Good morning. Thank you very much to Professional Pensions for inviting me to speak today.
This morning I’m going to spend some time updating you on some of the key things in the defined contribution (DC) space that are occupying us at TPR at the moment.
I plan to focus on master trust authorisation and on TPR’s new, more proactive approach to regulation and what it means for trustees, employers and their advisers, and our priority to reduce the number of poorly run schemes.
There are of course many other areas that I won’t have time to cover, but I’ll aim to leave some time for questions and I’ll be around during coffee if there’s anything else you want to pick my brains about.
I’ll start with master trusts.
The window for authorisation applications is now closed. Before the deadline we received 30 applications, and we’ve granted extensions to a further 10 schemes.
There are two main reasons why schemes apply for extensions. The first, and a common reason, is a key change to a scheme, such as a new owner, administrator or trustee.
The second reason is because we encouraged those who were filing authorisation applications in the last two weeks of March to also apply for an extension. We are keen that schemes file the best possible application for authorisation.
To put this in some context, applications we have received so far have included up to 872 documents and checks on up to 115 people involved in the running of the scheme to make sure they are fit and proper.
Rejecting an application because of a missing piece of paperwork is clearly not in the interests of a master trust or its customers - both members saving for their retirement and employers fulfilling their automatic enrolment duties.
We did see a late surge in applications, which we planned for and resourced. The coming months will be busy for us but we have a dedicated team which is ready to assess these applications within our expected timeframes, to ensure all master trusts meet the required standards.
We’re really excited to know that by the end of the year there will be a market of authorised master trusts which will provide better protection for the almost 14 million people saving for their pensions in these schemes. We’ve already granted authorisation to three master trusts which is already great news for savers.
As master trusts become authorised we will be maintaining close relationships with them as part of our supervision work to ensure these standards continue to be met.
New supervisory approach
That brings me on to talk about TPR’s new approach to regulation; I’m sure by now you have all heard our ‘clearer, quicker, tougher’ mantra, which is now becoming truly embedded in the way we regulate.
We are developing a new way of working that is predicated on the idea of increased supervision.
This starts with setting clearer expectations and intervening proactively with more schemes, using a wider range of regulatory tools and approaches. This will enable us to positively influence behaviours and prevent problems from developing in the first place.
There are two aspects to this:
We are introducing dedicated, one-to-one supervision for some of the largest pension schemes in the landscape. Whilst supervision is a key part of the master trust regime, we will also be applying it to other schemes across the occupational pension universe. We’ve selected a group of major defined benefit (DB, DC and public service schemes for one-to-one supervision, based on a range of criteria including size, risk and previous interactions with TPR. We’ll be in ongoing contact with the trustees/managers and employers of these schemes - schemes whose size means that they are strategically important regardless of whether they trigger our traditional risk indicators.
This will enable us to monitor schemes more closely, outline clearly our expectations, and intervene more quickly where we have concerns.
And we’re developing high-volume supervisory approaches to target risks and influence behaviours amongst a much broader group of schemes. Schemes across all sectors, whatever their size, can expect the volume and frequency of their interactions with us to increase.
To achieve this, we will intervene using a broader range of regulatory tools and approaches. This will include a regime of thematic work to examine risks and issues amongst different segments of the pensions landscape.
And high-volume directive activity designed to drive up standards and change behaviours where we have identified particular risks amongst a wider group of schemes.
By being clear about the standards and behaviours we expect, we intend to prevent problems from developing that could require heavier regulatory intervention at a later date.
For example, we are piloting a high-volume supervisory approach with a group of around 50 underfunded DB schemes, of varying sizes, to assess their adherence to the expectations set out in our latest Annual Funding Statement, including our concerns as to whether some schemes are being treated fairly in respect of dividend payments to shareholders.
We will be proactively contacting schemes using range of techniques including outbound calls, emails and letters.
We will analyse the responses received, and, if our concerns are not properly addressed, schemes and sponsoring employers can expect an escalation in our response.
This could include face-to-face meetings to agree actions, issuing formal improvement notices or the use of our enforcement powers.
We will extend both of these techniques to increasing numbers of schemes over the next year and beyond.
So what does all this mean for DC schemes?
Whilst we are confident that authorised master trusts will provide well run, good value pension provision for members, we remain concerned that there are a large number of DC schemes in particular that don’t meet the standards we expect in terms of the quality of governance and administration, and the trustees are far from being well enough engaged.
And there are schemes where even though the trustees are engaged and trying very hard, they aren’t able to provide a value offering that is on a par with larger schemes.
Trustees of all DC schemes, including those at the smaller end of the scale, can expect to see us taking a greater interest in the running of their scheme. As I’ve outlined, our renewed regulatory approach will involve far more direct contact with schemes, using the data we hold to target high volumes of schemes within particular cohorts, in relation to particular elements of governance and administration. We’ll give clear direction about the standards that they are expected to meet, and what the consequences of failing to meet those standards will be. In the near future, many DC schemes can expect to hear from us in relation to the governance of default investment arrangements, core financial transactions, and record keeping – I’ll talk a bit more specifically about this a little later.
We know that running a pension scheme is not an easy job - and nor should it be - effectively managing large amounts of other people’s retirement savings means there are many complex issues that trustees must consider and make judgements on. And the direction of legislative change in this space means that trustees are increasingly required to publicly account for their decisions and actions. Savers should be able to expect the same standards of governance and administration regardless of whether they are in a large or a small scheme, DB or DC, and whether their pension is administered by one of the large third party administrators, or by an in house team.
It is inevitable that some schemes struggle to meet the standards that we expect, so in the DC space we will be encouraging those trustees to look at alternative options, including transferring their members into a scheme that offers better value, and winding up their existing scheme. This can be a difficult decision to make- we know that many trustees feel emotionally attached to their scheme and its members, but an objective view of the benefit to members must be taken. Last month we published updated guidance for DC trustees, which sets out how they go about doing this, and we will continue to guide them in that direction throughout our regulatory activity.
For schemes where consolidation isn’t necessarily the right answer, we’ll be focussing on continuing to raise the standards of governance. This follows on from our 21st Century trusteeship strategy which we have been implementing over the past couple of years, which included our very well received communications campaign, and working with industry to develop a set of robust standards for professional trustees, with an accreditation framework to follow.
Within the next couple of months we will be publishing a consultation paper to expose our longer term thinking and to gather industry views on further initiatives to improve standards of governance, across what we envisage will be a much smaller universe of occupational pension schemes. These include the potential for requiring a professional trustee to be on every trustee board, more diversity on trustee boards, minimum qualifications for lay trustees, and discussing the risks that we see in some of the sole trusteeship, and exploring what barriers to consolidation might still need to be addressed.
I’ve mentioned that one of the areas of focus is in relation to record keeping.
We know that our expectations in respect of record keeping and data quality are still not being met across the board. Our data shows that over a quarter of schemes haven’t measured their data in the past three years, and a further quarter have only measured their common data. And for DC schemes, even though there are clear legal requirements around the accuracy of core financial transactions, over half of trustees don’t have service standards with their administrators around this. And two thirds don’t track their administrator’s performance. So you can see there is work still to be done.
In the coming months we’ll be kicking off some high volume activity specifically targeting schemes we have identified, through the collection of data on the scheme return, that haven’t recently measured their data. We will set out exactly what action we expect those trustees to take, and if we remain unsatisfied with a scheme’s response, we are likely to progress to more intensive intervention, which could ultimately result in enforcement action being taken. In a second phase of activity we will look at schemes that have reported low scores. We will want to understand what improvement plans those trustees have in place. We do acknowledge that there are sometimes valid reasons for low scores, so we’re interested in what they’re doing about it and how they prioritise improvements.
One of the drivers for prioritising record keeping is the forthcoming introduction of the pensions dashboards.
Helping people to understand and get involved with their saving is critical in helping them to save enough for later life.
The dashboard will play a key role in highlighting the benefits of workplace pensions, especially to those saving towards their later life for the first time thanks to automatic enrolment.
Enabling people to view all their pension savings in one place will help them to plan for the future and take action, for example if they consider they are not saving enough for the later life they want.
But an effective dashboard must give confidence that consumers can trust the data in front of them. Work to improve the accuracy of this data to meet our standards will be vital to maintaining this confidence. Whilst work is ongoing to establish exactly how the dashboard will be rolled out, it’s likely that DC schemes will be near the top of the list, given the many millions of people now automatically enrolled.
We will continue to work closely with the DWP and the FCA, and the delivery group to be formed and led by the newly named Money and Pensions Service, to develop the regulatory framework that will maintain an effective dashboard and protect consumers.
We are also working with the industry to understand the challenges that must be overcome for the dashboard to achieve its aims. We look forward to the next steps in this project and the positive change it will bring for savers.
That’s me nearly out of time, and I’d like to leave a few minutes for any questions, so I’ll wrap up with the key things I’d like you to take away:
- Across the board, you can expect to see us directly engaging with large volumes of schemes on a range of issues where we want to ensure clarity and encourage behaviour change. And you will see us establishing one-to-one supervisory relationships with the schemes that have the greatest market impact - which isn’t limited to master trusts.
- We are likely to see more consolidation in the occupational pensions market. In the DC space in particular, we will be overtly encouraging schemes to explore consolidation into an alternative arrangement that provides good value for their members if schemes are unable to meet the standards we expect.
- Ultimately, we want to see the number of poorly run pension schemes reduce. All savers should be able to expect their pension scheme to be run to a high standard and provide good value.
Thank you. I’m happy to take questions.