UK – Larger-scale defined contribution (DC) funds are more likely to have the “quality features” to achieve desirable member outcomes, the UK Pensions Regulator has said, citing internal research.

The news comes less than a month after TPR’s chairman warned against using small funds for auto-enrolment.

Examining a sample of 300 funds for 21 features covering investment, governance standards and value for money, the research found that three-quarters of large funds met at least 70% of the criteria, compared with just over half of medium-sized schemes and only 18% of small vehicles.

Examining investment behaviour, it said 70% of large funds reported an annual examination of the suitability of default funds, compared with 61% of medium-sized trust-based schemes and 39% of small funds – narrowly below the 46% average.

Discussing the results, chief executive Bill Galvin said: “This research supports our view that schemes benefiting from economies of scale are more likely to display the features of good governance and to provide value for money.”

Last month, the regulator’s chairman Michael O’Higgins told a National Association of Pension Funds conference that small schemes were “not the answer” for auto-enrolment.

At the time, he said: “I want to say explicitly that workers should not be automatically enrolled into smaller schemes that do not benefit from economies of scale, tend to be poorly run and do not deliver value for money in the charges they make to members.”

Galvin added that the new research showed that many existing smaller funds fell “well short in the quality features” the regulator regarded as necessary for securing a good retirement outcome.

Value for money of investment options was also examined – recently under the spotlight following comments from the opposition Labour party leading up to the publication of an industry code on the matter – with just one-quarter of all respondents saying they were either very confident or confident that investment options were not overpriced.

Galvin took the chance to confirm that January would see the launch of a widely expected consultation of the regulator’s approach towards DC funds, which would include it outlining the standards it expected all trust-based funds to meet.

He added: “Our communications to employers will encourage them to choose schemes that can demonstrate they are compliant with our principles.”