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Driving innovation in the interests of the saver

Thursday 19 October 2023

Nausicaa Delfas, CEO of The Pensions Regulator (TPR) gave a keynote speech to the PLSA annual conference on the key priorities for TPR.

Key points

  • We are moving to a landscape with fewer larger well-run schemes that facilitate investment in a diverse range of assets to deliver better outcomes for pension savers.
  • We all need to work together to drive innovation in the interests of savers – whether through new consolidation vehicles; a greater focus on value, rather than cost; higher standards in trusteeship; or through the introduction of new “at retirement solutions”.
  • TPR will work with you, to protect savers money, enhance the pensions system and support innovation in the interests of savers.
  • The pensions landscape is evolving – we must all evolve with it.

Thank you for inviting me to speak today.

In my first 6 months as Chief Executive of The Pensions Regulator, I have spent time meeting many of you and engaging with staff across the Regulator, immersing myself in the pensions industry and setting out my vision.

I have found a Regulator and an industry keen to do their best for savers.

These interactions and my previous experience at the FCA have convinced me - I have arrived at time of significant change.

A point at which we can all work together to make changes for the good of millions of pensions savers across the UK.

We are moving from a fragmented pensions landscape, with thousands of small schemes, to one of fewer, larger, well run and well governed schemes. And as you will all be aware, most people are now enrolled in DC schemes – a shift from DB. We need to ensure the system works for DC savers.

This evolution of the market requires us all to evolve with it.

And this includes TPR – as a regulator, we need to evolve too.

In my view, TPR should focus on three things:

  • Protecting savers’ money by making sure trustees and employers comply with their duties;
  • Enhancing the system through effective market oversight, influencing better practices; and
  • Supporting innovation in savers’ interests so that new products and services deliver good outcomes.

I see the regulator as being part of the solution.

In my meetings with you, I have been really pleased to hear your ideas and progress in innovations in savers’ interests – whether it is consolidation, member communications or at retirement solutions.

Today I would like to encourage you to continue to innovate and to actively work with us to deliver the best outcomes for savers.

I will set out the key principles of my vision, and highlight areas of strategic interest that will draw our future focus and outline how we will evolve our regulatory approach in response.

Importantly, we will continue to develop that response working with you, the pensions industry, Government and other regulatory partners.

Protecting savers’ pensions

A good pension can provide people with security, financial wellbeing and options in retirement. People work for more than 40 years, day in and day out, and trust you in this room to keep their pensions safe.

It’s our job to assure the public that you are keeping their money safe.

And we do that by setting our expectations clearly and coming down hard where we find poor practice. And here I am not just talking about compliance - I’m referring to the wider structures, practices and mechanisms within the pensions industry.

I believe that across both defined benefit and defined contribution schemes, consolidation in savers’ interests can be a driver of good outcomes.

Pensions are, at their heart, an investments business, People trust you with their money to deliver either what is promised to them, or the best return possible. You can only do that by being properly run with the highest administration standards.

Bigger schemes with larger budgets tend to have the skills and capability to make better investment decisions and can access a broader range of asset classes.

Too many savers are in sub-scale and sub-par schemes that threaten their chances of good retirement outcomes. Our Annual DC schemes survey has persistently found evidence of poor governance in smaller DC schemes.  For example, in our most recent survey, the key governance requirement on assessing VFM was only met by 16% of small and 18% of micro schemes.

And while Data Management Plans are widespread among larger schemes, fewer than a third of micro or small schemes have one in place.

That tells me that too many trustees and administrators are failing in the most basic requirements, let alone harnessing the possibilities of technology to provide real benefits to savers.

And whilst we have already seen a 67% reduction in schemes larger than 12 members in DC over the last decade, far too many remain in the market which don’t deliver for savers.

Our forthcoming value for money framework will mean there is no place left to hide. By mandating comparable, standardised data disclosures across the key components of value we can lift the lid on performance and shift the focus from cost alone to real value.

Disclosure should enable effective competition in the market. For good schemes to get better, and poorly performing schemes to exit the market.

Of course, value isn’t a one-size-fits all proposition. Different savers and employers will value different things. But we want that difference to be a product of a genuine focus on value rather than as a by-product of a lack of engagement.

The DB side of the market is also fragmented. Many schemes lack scale to deliver the best returns, with around 5,000 schemes over 70% of which have assets under management of under £100m.

That is why all trustees should be asking themselves tough questions around consolidation now and in the future.

Whilst in DC schemes, without pension guarantees, the question is simple: Can I compete and offer as good value as the biggest master trusts?

In DB, it is more complex, and there are a number of issues to resolve to enable effective consolidators to emerge.

But new savings vehicles have the potential to absorb savers from weaker DB schemes or those approaching their end games but that are priced out of the buy-out market.

That is why we want to foster an emerging superfunds market. We want models which offer better protection to DB members and enhance the likelihood of them receiving their promised benefit.

We have already gone ahead of any statutory legislation with our superfunds assessment regime, and recently updated our guidance in liaison with the industry.

We want to embrace innovation in savers’ interests here. We want to hear from those of you in the room who are thinking about new ways to consolidate and work with you to bring safe consolidation vehicles to market. And we are really thinking about how we ensure our processes are not barriers to innovation in this area, whilst still ensuring savers are protected.

Through working together on this, we expect trustees to have more consolidation options available to them in the coming years.

Enhancing the system

As a regulator, our role is not just to protect savers’ money. It’s also to enhance the system and help to deliver good outcomes.

One area of focus for me here is on the quality of trusteeship.

Savers expect the people looking after what is, for many, their entire retirement savings, to be appropriately skilled and qualified.

They expect trustees to ask tough questions and to challenge their advisors to bring product offerings that savers want and need.

They expect diversity and inclusion within trustee boards, representative of the scheme membership, so that diversity of thought drives good governance and decision-making.

Savers deserve more than minimum standards and we are unapologetic about the standards we expect from trustees.

As the pensions system has developed, trustees have been asked to take on ever more responsibility. We are acutely aware of these challenges.

To disclose more. To consider more.

The interplay between global markets, increased awareness of the impact of climate change, duties around suspicion of criminal activities – these responsibilities are all important and will, I am sure, be joined by others as the pension system advances.

That is why a clear focus for us as a regulator will be on the quality of trusteeship – we want to see a balance of expertise and the savers’ voice guiding decision-making.

The underpinning philosophy of trusteeship is based on fit and proper persons taking reasonable decisions on behalf of others. Here the ‘trust’ in trusteeship is key.

As responsibilities have grown and the associated risks increased, there is now a question as to whether ‘trust’ is enough?

Good trustees share a culture entirely consistent with delivering good saver outcomes. Diligent. Trustworthy. Knowledgeable.

But to evolve in a new economic and political environment we have to build on our strengths to make the most of new opportunities.

Responsive. Data driven. And outcome-focused.

These must be the new watchwords for any trustee.

Our expectations of you will be made clear in our forthcoming General Code. And we are working with DWP to consider how best we improve quality of governance across all trustee boards.

But you should expect that as a regulator we will increasingly be challenging you to make sure you really are making decisions in savers’ interests.


My view is that as well as protecting savers and enhancing the pensions system, we should at TPR also encourage and foster innovation in savers’ interests.

Here, I am keen to explore how we can all focus our efforts “at retirement”.

DC savers will need you to create new products to help them to plan and spend their retirement savings.

Thanks to the introduction of automatic enrolment in 2012, we have seen a pension saving revolution.

Participation rates have doubled in the private sector during that time, with people from every background putting something away for their retirement.

The vast majority of those savers are within authorised master trusts – where survey data tells us they are in schemes that are well run and well governed.

But most of those savers have never made an active choice to save. And near universally, the investment decisions have been made for them by the scheme via their default arrangement.

Most people retiring now are likely to have a combination of income sources for their older life. DC is unlikely to be their sole provision.

And yet, over the coming years, that will all change. People will soon be faced with an incredibly complex choice about how to support themselves in retirement, how to manage longevity risk, and how to understand what options are available to them.

We must help them navigate these choppy waters – bringing a product suite to market which works for different savers and different retirements.

We all need to help to guide savers towards the right products for them, with a suitable backstop for those unable to make a decision.

If not, we risk a lost generation of people suffering in retirement.

We expect the market to innovate to meet the needs of diverse savers, and as a regulator our job will be to encourage that innovation where that is in the interests of savers.

One area for exploration within this is multi-employer Collective DC schemes.

The Government has acknowledged its interest in this area, and we stand ready to build on our authorisation regime to facilitate this kind of pension provision, should savers, employers and schemes demand it.

Our evolution in response

I have set out my priorities to protect, enhance and innovate in savers’ interests.

To deliver these missions, and help shape the market towards fewer, larger, well-run schemes, we must change as a regulator.

We must use our powers effectively to drive high compliance and meaningful behaviour change amongst trustees.

We must influence ever greater outcomes by being truly data-led and digitally-enabled, acting on enhanced insights about the state of the market, to anticipate the threats and opportunities to come.

And we must innovate by thinking creatively about our regulatory approach, extending our reach to work with the actors in industry whose influence goes market-wide.

So briefly taking each in turn:

Use our powers to change behaviour

Historically our focus has been on guiding schemes and employers towards compliance.

Now with clearer expectations, we will be more assertive, testing our powers to ensure savers are protected.

For example, we have launched a regulatory initiative to make sure schemes with assets under £100m are complying with their enhanced value for members assessments. Our initial findings show that some are already deciding they are not offering value for money and plan to wind up. But some are failing to act in savers’ interests.

In the past we might have sought to educate those trustees.

No more. Now our focus will be on taking regulatory action to help drive consolidation in savers’ interests. Testing the full suite of powers available to us to really change behaviour.

We will be issuing details of the action we are taking as part of our initiative shortly.

Influence for better saver outcomes

In this new pensions landscape, as a regulator we need to go beyond basic compliance, influence the market for greater saver outcomes.  

We have bolstered our investment specialism, hiring respected experts from industry. And we will soon launch a new digital and data strategy outlining our future transformation.

Across all scheme types we will not only require you to disclose more information about your scheme, but to also analyse, interpret and act to spot and mitigate risks before they materialise.  

We all need to work together to harness the powers of data and digital so we can act quickly and spot potential risks and threats across the whole system and react accordingly. We will need lots of information from you to enable us to do this, and we want to make it as easy as possible for you to give us this data. But we do expect you to have it and to be able to assimilate it quickly and easily.

In DC, the value for money framework is of course fundamental to this. Access to standardised, objective data on scheme performance, and a laser-like focus on value will evolve our regulatory and supervisory approach.

Multi-disciplinary teams of experts engaging with you, understanding performance in the wider market at large, and championing best practice wherever we find it.

In DB, our forthcoming DB Funding Code will provide schemes with the continued flexibility around funding to suit their circumstances, while requiring trustees to think carefully about risk management in a complex economic environment. Contrary to some perceptions, the framework allows all schemes to invest in growth assets, with much greater flexibility for open schemes and those further away from their end game.

The Code, which we acknowledge has taken longer than anticipated due to the parliamentary process, not only sets our expectations clearly to the market but also changes the game in terms of the volume and type of data that we as a regulator can analyse to ensure savers interests are protected.

This will give us not only detailed information on schemes, but also build our understanding on a market-wide level. This information will help us better identify systemic risk reflecting the fundamental role that the pension system plays in overall financial stability.

Innovate in our regulatory approach

Finally, as the market evolves, we will seek to innovate our regulatory approach and framework.

That means working with the full extent of the pensions eco-system, not just those who fall under our regulatory remit. Already, we are starting to stretch the limits of our powers in striving to deliver good saver outcomes.

Last January we started formally engaging directly with third-party pension administrators, recognising the critical role they play in the pensions eco-system.

Following a successful pilot, we now have this as a permanent part of our approach to regulation, working with administrators who represent around nine million members in 1,500 schemes. Understanding risks and driving improvements across: systems and processes; cyber resilience; data quality; trustee focus; member engagement; and dashboard readiness. 

I will be pushing my team to think carefully about who else in the sector has a role to play in delivering good saver outcomes and encouraging innovation in our regulatory approach to make sure they act in savers’ interests.

So to conclude,

  • We are all moving to a landscape with fewer, larger, well run schemes that facilitate investment in a diverse range of assets to deliver better outcomes for savers
  • We need to all work together to drive innovation in the interests of savers – whether through
    • New consolidation vehicles and a greater focus on value, rather than cost;
    • Higher standards in trusteeship; or through
    • Introduction of new “at retirement solutions”
  • TPR will work with you, to protect savers money, enhance the pensions system and support innovation in the interests of savers. We will continue to listen to you and develop our policies and regulatory approach in tandem with you.

The pensions landscape is evolving. We must all evolve with it.

Thank you.

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