Last Wednesday (25 October 2023) Chief Executive of the Pensions Regulator (“TPR”) Nausicaa Delfas gave a speech to the Mansion House Pensions Summit in which TPR nailed its colours firmly to the mast when it comes to the future shape of the pensions market.   

Shift in regulatory approach to drive behavioural change

Not only does TPR support the Government’s Pensions and Growth agenda, it sees driving change in the market as a key part of its role to improve member outcomes.  In its 2023/4 corporate plan, two of the five strategic priorities identified for TPR are:

1. protecting people’s savings in workplace pensions; and
2. improving the way workplace pension schemes are run.

With these priorities doubtless in mind, Ms Delfas announced last week that TPR’s regulatory approach is evolving to “help shape the market” towards fewer, larger well-run schemes that are capable of investing in a diverse range of assets.  She said that the focus will be on protecting, enhancing and innovating, and that going forwards TPR intends to “use its powers effectively to drive high compliance and meaningful behaviour change amongst trustees”. 

TPR says it will be “more assertive, taking regulatory action and testing our powers to ensure savers are protected”.  The fine issued to the trustee of the ExxonMobil pension plan over the summer, for an IT error (a faulty url) which led to a breach of climate change reporting requirements, is perhaps a sign of this more assertive approach already coming to the fore.   

There is no doubt that smaller schemes can expect to be the subject of TPR’s keen focus on compliance and enforcement.  The drive towards consolidation continues and small schemes are advised by Ms Delfas that if they don’t have the “scale, expertise or appetite” to deliver outcomes for members they should be moving their savers into a scheme that can. 

Scheme administrators too should prepare for closer scrutiny.  TPR has already published a blog post setting out how it is taking steps to build relationships and work more closely with administrators.  At the PLSA conference earlier in October, Ms Delfas emphasised how schemes can only meet their duties to members where they are properly run “with the highest administration standards”.  Engagement with pension scheme administrators is clearly seen as a growing priority and indeed an independent review of TPR published in September suggested that the DWP should review the case for bringing the regulation of administrators within TPR’s remit.

A new digital and data strategy outlining TPR’s future “transformation” will form part of the new approach.  The corporate plan describes an ambition to be a “data-driven, digitally enabled regulator”.

What changes does TPR want to see?

One of the behaviours TPR wants to drive is to shift trustee focus from cost alone to “value for money” – this is a key area of the corporate plan.  In an echo of the Chancellor’s Mansion House proposals, Ms Delfas emphasised the need for pension scheme trustees to balance risk and reward through a diversified investment portfolio in order to achieve the best outcomes for members.

Both TPR and the Government believe that this diversification of investments, and thus improved value for money for savers, will be best achieved through consolidation of schemes. In relation to the delivery of the best possible retirement income for members, Ms Delfas said that: 

“As a regulator, we are clear that having fewer, larger, well-run schemes that facilitate investment in a diverse range of assets will help achieve this.” 

The new value for money framework for schemes is mentioned as a tool for driving improvements.  “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. We want trustees of DC schemes to be focused on running the scheme to deliver excellent value for money and we want employers to choose schemes based on this same thing”. As set out above, it is no secret that those schemes performing poorly based on the value for money metrics will be under pressure to either improve or to exit the market.

What happens next?

In support of the drive to diversify investments, Ms Delfas announced that TPR will publish new guidance on investing in private markets by the end of this year.  “In due course” it will also update the existing investment guidance for DB and DC schemes. 

Consensus in the industry has been that the draft DB funding code will need to be updated in the wake of the Mansion House reform proposals and this seems now to be bearing out.  Ms Delfas commented that “our new DB funding code will also clarify that there are no limitations on what constitutes suitable assets in which to invest, and all schemes can invest in growth assets, with much greater flexibility for open schemes and those further away from their end game.”.  The 2023/24 corporate plan referred to preparing to launch the new DB funding regime and code in April 2024, but that was published in April 2023 and its not clear whether April 2024 is still an achievable date in view of the Mansion House reforms.

Following on from last week’s statement from the Chancellor that he has set a clear deadline “to conclude the policymaking process” by the Autumn statement, we are expecting an update on the Mansion House reform proposals on 22 November.  With TPR and Government apparently singing from the same hymn sheet on many of the key aspects, it will be interesting to see how quickly the Chancellor intends to move on the various measures that make up the Mansion House reforms package, and whether TPR will be given any additional powers to help achieve the agenda.