The Evolving Pensions Market
As discussed in previous blogs, the pensions market is ever evolving, and we are seeing it progress towards a system characterised by fewer, larger 'mega' schemes. This change is generally expected to achieve greater outcomes for savers and positively impact the UK economy. Alongside this, new business models and innovative scheme services are emerging and influencing scheme governance.
TPR's Regulatory Approach
The Pensions Regulator (TPR) has announced that, along with its recently outlined strategic priorities, it is evolving its regulatory strategy to better align with the dynamic changes in the pensions market. By adopting a "more prudential style of regulation", TPR aims to address risks to saver outcomes that emerge both at scheme level and from broader market and financial system influences.
TRP's Engagement with Professional Trustees
TPR is on a mission to better understand industry risks and as part of this effort, TPR is looking to learn more about the business models of those they regulate, namely professional trustee companies, and will introduce a new framework for oversight of professional trustees. This sector has seen remarkable growth, with a significant proportion of UK schemes now relying on professional trustees. Working together, TPR aims to assess risks more effectively, enhance saver outcomes and set clear expectations across the industry driving compliance with professional trustee standards. To achieve this, TPR has commenced actively building strong relationships with the largest firms in the market.
TPR's Future Focus
Through in-depth conversations with 11 of the largest trustee firms, TPR has identified and delved into understanding the following key areas of business: ownership structure, skills and experience, diversity and inclusion, conflicts of interest and fees. These conversations have highlighted several risk areas where TPR plans to focus its engagement, including:
- how professional trustees manage relationships with employers;
- the impact of business models on trustee decision-making;
- the rationale behind sole trusteeship;
- potential risks associated with in-house advisors; and
- ensuring that daily decision-makers of schemes possess appropriate knowledge, accountability, transparency and support.
To get to the heart of the matter, TPR has confirmed that it will launch "expert to expert engagement" with select firms this summer and aims to expand their oversight to include the remaining firms by year's end, refining their framework for education and engagement whilst fostering a culture of open regulatory dialogue. Overall TPR seeks to set clear expectations with this outcome-focused approach to regulation, identify and mitigate key risks, raise standards across the market and better inform employers and trustees when choosing their professional trustee provision.
Responses from Professional Trustee Companies in relation to the Regulator
We have generally seen that responses from professional trustee companies have been overwhelmingly positive.
Independent Governance Group (IGG) has welcomed the announcement from TPR and acknowledged the high bar that professional trustees must meet to ensure high standards of trusteeship and governance which better protects savers. In their response IGG highlights its long-standing commitment strengthening governance standards and rightly wishes to continue this trajectory by working with TPR to ensure their new regulatory approach is successful and innovation in the market is encouraged.
Dalriada has followed suit, affirming that they believe beneficiaries of pension schemes deserve the highest standards of governance, risk management and expertise and that professional trustees should be at the forefront of this. Dalriada emphasises that increased oversight is crucial to ensuring best practices are followed which is ultimately fundamental to enhancing member outcomes.
BESTrustees echoed this sentiment by expressing their dedication to upholding the highest of standards to enhance confidence for pension savers through the outcome-focused approach, reiterating the value that they place on collaboration and transparency in the industry.
Conclusion
It's fair to say that the conversations within the pensions industry have been optimistic for the future. The increased regulation introduced by TPR is not only welcomed but also seen as a necessary step towards ensuring higher standards of governance and better protection for savers. By fostering open dialogue and collaboration, TPR and professional trustees are paving the way for a more robust and innovative pensions market. This outcome led approach is set to benefit all stakeholders, enhancing trust and confidence in the sector.
If you would like to discuss anything raised in this blog in more detail, please get in touch with a member of the pensions team or your usual Brodies contact
