Regulator voices ‘real concerns’ over small DC schemes
The new head of the UK’s Pensions Regulator (TPR) has used his first speech in the role to voice concerns about the long tail of small defined contribution (DC) schemes.
Speaking at an industry event, TPR chief executive Charles Counsell said small schemes that did not meet expectations would be encouraged to consolidate.
“In the DC world, we pressed for better regulation of master trusts for a long time and that’s now – very nearly – in place,” he said. “Beyond master trusts, we have the very long tail of smaller DC schemes, which we have real concerns about.
“I’m not saying that all small schemes are badly run, but I am saying that if they don’t meet our expectations we will encourage them to consolidate into what we now know is a well-run, authorised master trust.”
Focusing on the regulator’s long-term strategy, he emphasised the importance of risk management and said it would take a much more active ‘troubleshooting’ role than previously, including the creation of a strategy and risk directorate.
“[Pension savers are] individuals who carry the risk – and who are largely neither engaged nor experienced at managing this risk,” Counsell said. “They are people who need to be better supported and, crucially, better protected. It’s right that we hold to account those who put savers’ pensions at risk.”
In March, the regulator prosecuted a trustee of a scheme who had transferred nearly £300,000 (€335,000) of savers’ money into his own business and, as a result, was jailed for 39 months.
TPR also stepped in last month to remove trustees from a DC scheme as they lacked the knowledge and understanding to run it effectively.
Andrew Pennie, head of pathways at advisory group Intelligent Pensions said that anticipating problems before they arose to help protect pension schemes and pension savers was clearly in the interests of all and how a good regulator should be operating.
He added: “Many of the future TPR initiatives adopt a top-down approach with the word ‘consolidation’ being used frequently. Under pension freedoms, savers now have tremendous choice and opportunity, but with that comes increased complexity and risk. Mistakes are easy to make, often irreversible and usually very expensive.”
In his speech, Counsell also reiterated the success of auto-enrolment, but emphasised that the focus should turn to those that were not currently captured by the initiative.
According to data from TPR, there has been an increase in saving among those aged between 22 and 29 years old, from 35% in 2012 to 85% in 2018.
Low earners have also benefited from auto-enrolment, TPR data suggested, with 81% of those earning between £10,000 and £20,000 contributing to a pension in 2018, compared to just 34% in 2012.
However, there has long been a call for the government to extend the catchment of auto-enrolment to the self-employed, a group that has so far been underserved by pensions.
Counsell said: “We need to think about how to improve [auto-enrolment] further over the long term… adapt our processes, use data smartly and efficiently so that companies continue to meet their duties.”
He said schemes must also consider the potential impacts of climate change, technology and global economic trends on savers “to make sure our industry is fit for the future”.
Intelligent Pensions’ Pennie added: “Everybody’s retirement will be different and TPR needs to push for much greater personalisation rather than ‘one size fits all’ solutions if we are to see savers achieve better retirement outcomes.”
Later this year, the watchdog will publish a consultation for its long-term strategy.