Master trusts, some of the UK’s biggest defined contribution (DC) schemes, will be supervised differently to identify market and saver risks sooner and enhance the pensions system.
The Pensions Regulator (TPR), which authorised the UK’s 33 master trusts, said, after a 12-month review, it is evolving its approach to supervision and its regulation of the DC market to make master trusts the gold standard in pension provision.
The master trust authorisation framework was set up in 2019 to make sure businesses governing the DC pensions are well run, well governed and financially solvent. Today nine in 10 trust-based DC pensions are in master trusts.
Now, with the master trust market thriving, the regulator’s focus is on making sure all savers receive value for money, with clear priorities around investments, data quality and innovation at retirement.
The shift in approach will see schemes split into four segments of supervision:
- monoline master trusts
- commercial master trusts
- non-commercial master trusts and collective DC schemes
- single and connected employer DC schemes
Each segment will have tiers of engagement based on the specific risks they present to market and saver outcomes.
As part of the new regime, every scheme in the monoline and commercial segments will be allocated a dedicated multi-disciplinary team of named individuals with expertise in financial analysis, business strategy, investment and governance.
While driving high levels of compliance will still be a priority, TPR is also seeking open and transparent dialogue to help schemes capitalise on new opportunities which benefit savers.
Sam Grutchfield, TPR’s Director of DC and Master Trust Supervision said: “The challenge of the last decade was getting people saving. The challenge of the next is to make sure pensions deliver real value for money.
“With a more strategic approach to supervision, we can make effective, scheme-specific interactions using real-time data to spot scheme-level and wider risks sooner.
“There will be fewer, but more targeted data requests, and more focused, expert-to-expert meetings, allowing us to influence key decision-making in real time improving regulatory compliance and saver outcomes.”
Today (Thursday), TPR published a report on its oversight of the DC and master trust market, which sets out details of its new approach, including grouping DC schemes with similar risk profiles into four segments with different levels of engagement for each.
TPR said a 14-week pilot which worked with three large master trusts to test the findings of its review concluded that:
- targeted, expert-to-expert meetings led to better regulatory outcomes, facilitated more open and constructive conversations and saw problems solved sooner
- the new approach meant TPR could be clearer with schemes about its expectations, leading to more robust strategic decision-making, and its interactions gave better insights into scheme-specific and sector-wide risks and challenges
- the more strategic approach could see fewer and less frequent, but more targeted data requests to schemes cutting regulatory burden
The move is an example of TPR’s shift to a more prudential style of regulation, focusing on addressing risks not just at an individual scheme level, but also those risks which impact the market and wider financial ecosystem.
