UK – The UK Pensions Regulator (TPR) has launched a consultation on the future regulation of defined contribution (DC) funds, suggesting that legislation could be introduced to demand independent assessments of master trusts.
The consultation outlines more than 30 quality features trust-based DC funds should meet in future, addressing issues of governance, investment and value for money.
The National Association of Pension Funds (NAPF) welcomed the regulator's proposals, but criticised that contract-based arrangements, currently subject to regulation by the Financial Services Authority (FSA), would not be covered.
Bill Galvin, the regulator's chief executive, stressed that where funds fell short of the outlined standard, improvements would be expected.
"Some smaller schemes may find this challenging and decide the interests of their members would be better served in another type of arrangement," he said, echoing his own recent statements and those made by the regulator's chairman Michael O'Higgins that larger schemes would be more able to ensure quality.
Master trust provider B&CE, one of the founding members of the Master Trust Association, welcomed recommendations on verifying a scheme's quality, as well as the regulator's recognition that the trusts should be seen as a category separate from traditional occupational DC funds.
However, director of consumer solutions Jamie Fiveash said some misunderstood the way master trusts worked, noting a perception of a conflict of interest.
He added that an independent audit would only entail unnecessary costs for members and urged a different approach.
"There should be an industry quality mark, or alternatively the TPR should regulate master trusts through site visits," he said.
"This should be justifiable through the fees payable and because there will be only a handful of master trusts of any note."
The regulator's consultation acknowledged the smaller number of master trusts, and suggested that the costs of implementing the assurance framework would be "modest where schemes have achieved economies of scale".
TPR said a high estimate of such an assurance framework for master trusts would be £92,600 (€113,630) per annum.
It also solicited for advice on whether such an independent assurance should be mandated through future legislation.
Neil Carberry, director for employment and skills at employer lobby group CBI, said ensuring confidence among DC members would be "crucial" to the success of auto-enrolment, but warned against applying regulation above and beyond the existing statutory level.
"The regulator needs to tread carefully, as developing high levels of saving in DC schemes, above the statutory level, depends on avoiding the over-regulation that damaged defined benefit schemes," he said.
The CBI also welcomed the cooperation of the FSA and TPR to ensure "similar levels of protection" across trust and contract-based offerings, something the NAPF did not see as sufficient.
According to the NAPF's director of policy Darren Philp, there is a need for a "joined-up regulatory approach", requiring closer cooperation by the two bodies.
While Philp cautioned that the voluntary reporting requirements would place additional burdens on funds that could undermine good outcomes for savers, he was more positive of the regulator's emphasis on the benefits of scale, saying it confirmed the organisation's view that larger scheme funds were better governed.
"We now need to ensure we create a regulatory environment that helps foster the creation of large pension schemes," he said.
The NAPF has long supported the introduction of super trusts, and its chair Mark Hyde Harrison has previously suggested the regulator should be allowed to merge smaller funds to achieve benefits of scale.