On 22 May 2024, at the Professional Pensions Live conference, Nausicaa Delfas (the CEO of the Pensions Regulator (TPR)), delivered an important speech on its priorities, and the priorities that TPR considers should be highest on the agenda for pension scheme trustees. 

The Pensions Challenge

Firstly, though in setting the tone for her speech, Ms Delfas explained that pensions is “in a moment of significant change that requires us all to change with it”, and that her speech set “out the regulatory roadmap for pensions which drives value for defined contribution (DC) savers, security for defined benefit (DB) members and higher standards of trusteeship for all”. 

We have recently discussed the challenges that schemes are facing. In the shorter-term, these include the DB funding code and the various value for money/member initiatives; and then, looking further down the line, TPR expects those to include tackling deferred small pots. 

Ms Delfas re-iterated that TPR’s three key priorities are: driving value for money in defined contribution schemes; securing the future for defined benefit schemes; and raising standards across all scheme types. 

Whilst none of the priorities are new, TPR is re-iterating again its focus areas and that it will not be shy in driving forward these priorities. However there was a clear emphasis in Ms Delfas’ speech on TPR moving away from its reputation as the enforcer of legislative breaches to acting as a “critical friend”, i.e. a move towards collaboration and co-operation with the industry to jointly strive towards a “regulatory environment that encourages and supports innovation in savers’ interests”.

Key points touched on in Ms Delfas’ speech were as follows:

Corporate Plan

One of the main ways in which TPR sees itself assisting trustees with tackling the “pensions challenges” outlined above is via its Corporate Plan – which you can read a detailed summary of in our article published earlier this month. 

In her speech, Ms Delfas builds on the aims set out in TPR’s Corporate Plan – noting that TPR’s “overriding priority for defined contribution schemes is to make sure that all savers receive value for money, from joining a pension scheme to being supported into quality products at and through retirement”. And in relation to defined benefit schemes, that their futures are secured.

Her other stated aims are that all schemes are well run with high quality data leading to informed decision-making by “excellent trustee boards”.

For all this to happen Ms Delfas noted that “as a regulator you will notice that we deliver differently to make it happen”.

Value for money - Small Schemes

One way in which Ms Delfas explained that they are seeking to achieve value for money is by targeting the governance of small schemes – with “less than 20%... assessing if they deliver good value for money”, leading Ms Delfas to note that many do not provide good value. Accordingly, Ms Delfas states that there will be “a step-change in our enforcement approach”, with TPR planning to “expand our regulatory initiative to make sure we target many more of the schemes with assets of less than £100 million who are required to comply”. This proactive stance is a clear message to small schemes: regulatory compliance is not optional.

Refreshing approach to master trust supervision 

Ms Delfas noted that TPR will be evolving its approach to the supervision of master trusts and will be “lifting the bonnet of how schemes operate to really understand their systems and controls”. So TPR will focus on what is ahead rather than looking at the past and this will allow TPR to build a picture of the market and identity both industry wide risks and market trends but also scheme specific risks. 

Securing the future for defined benefit schemes

Ms Delfas touched on the changing landscape for defined benefit schemes in a world of surpluses and the availability of DB options that may not have been there before (e.g. continuing to run-on). It very much felt like paving the way for TPR’s guidance expected later in the year aimed at trustees and addressing the full range of alternative models of defined benefit provision. Ms Delfas also mentioned the importance of the DB Funding Code and bedding that in so that the industry is clear on TPR’s expectation. 

The Role of Professional Trustees and Sole Trustee Models

One trend noted in the Corporate Plan and specifically touched upon in Ms Delfas’ speech is the emergence of professional trustees and sole trustee models. 

Ms Delfas notes that, whilst these models can elevate standards and provide greater assurance, they also concentrate decision-making power and potentially detach it from the membership and so they bring both risks and opportunities for TPR as regulator. TPR's strategic approach will involve understanding these models' operations and business models to ensure savers' interests are always prioritised. 

She noted that across all types of trustees, TPR “need to understand what trustees are seeking for their members” and that “a sign of quality decision-making is in asking the right questions, informed by the right data”.

Data Quality 

Ms Delfas also placed significant emphasis on data quality and disclosure – noting that both provided the industry with a “huge opportunity for the whole market”. In particular:

  • For DB schemes – widening the spectrum of potentially attractive end game solutions. 
  • For DC schemes – increase attractiveness to master trusts, offering more consolidation choices.

TPR therefore advocates for industry-wide transparency through open standards and data exchange protocols, fostering a thriving pension industry that sets new benchmarks in transparency, efficiency, and societal contribution. This initiative, driven by new climate reporting requirements, the impending value for money framework, and the Pensions Dashboards, underscores the urgency for schemes to measure and enhance their data quality. With the approaching connection dates for Pensions Dashboards, TPR is clear that schemes should have data quality and disclosure high on their priority list. 

Looking Ahead

As we look to the future, the pensions landscape will undoubtedly continue to evolve although the future of some of the ongoing pension policies and initiatives (e.g. the Mansion House reforms including the various Value for Money/Member initiatives) now looks decidedly shaky in light of the calling of the General Election on 4 July (see more on that in a series of upcoming blogs from our pensions team). 

General Election and pension policy aside, the increased regulatory focus on small schemes may lead to a consolidation in the market, with schemes either stepping up to meet the heightened standards or winding up (in a similar manner to some DC schemes as reported by TPR in its recent DC/Value for Money initiatives). 

The role of professional trustees seems likely to become subject to closer scrutiny by TPR who are not clear that a sole professional trustee is not necessarily the solution for all schemes.

Finally, TPR is clear that improving pension scheme data is a material focus as they view it as opening a floodgate of opportunities for schemes and also the industry in terms of the development of new propositions, driving competition and increasing customer choice. It is clear that TPR expects trustees to ensure their data is in the best possible shape and then leveraging (and sharing) it to serve their members' best interests. 

More generally, the industry must also brace for the potential impact of technological advancements (eg. the current AI revolution), which could revolutionize how schemes operate and engage with their members. We have also written on this topic which is the first in a series of AI and pensions articles 

If you would like to discuss any aspect of this blog, please contact our Pensions Partner, Michael Hayles, or your usual Burges Salmon pensions contact.

Written by Callum Duckmanton