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The UK’s pensions regulator has announced it will change its approach to focus on systemic risk in response to the government’s plans to create a series of ‘megafunds’ in the pensions industry.
Nausicaa Delfas, chief executive of TPR, said on Wednesday that the regulator was “shifting to a more prudential-style of regulation” as it forecast that multiemployer ‘master trusts’ will have schemes of systemically important size within the next ten years.
She added that the watchdog would now focus on “addressing risks not just at an individual scheme level, but also those risks which could impact the wider financial ecosystem”.
TPR’s biggest shift in strategy since its inception in 2005 comes after chancellor Rachel Reeves laid out proposals to create pools of pension assets of at least £25bn across local government and defined contribution pension schemes.
Delfas said TPR estimated that the reforms would push four master trusts to have “well over £100bn” of assets in the next decade on a consolidated basis, and three other schemes to have over £50bn.
The UK’s state-backed pension scheme Nest is currently the largest master trust with £46bn of assets under management.
Addressing the private and public pensions summit in Surrey, Delfas said the regulator had already started to engage its technical experts with pension schemes but it was now “completely restructuring how we approach defined contribution supervision”.
This will move TPR — which unlike the Financial Conduct Authority does not have rulemaking powers — towards a model which groups defined contribution schemes into segments with tiers of engagement “depending on the risks they present to the market and saver outcomes,” Delfas said.
She added that to ensure good outcomes for pension savers TPR’s focus was on three key areas: “scheme investments, data quality and, critically, trusteeship”.
She said that “raising the standards of trusteeship” was the regulator’s most important priority, as the nature of the role was changing in a more consolidated industry.
The regulator is concerned that where professional trustee firms offer a wider range of services — such as project management, communications services, procurement, data services, and fiduciary management — there could be conflicts of interest.
On investments, Delfas said TPR was stepping up its focus on the quality of a pension scheme’s investment governance practices. “While we do not want to drive short-term decision making, we do want forensic eyes regularly looking at performance,” she said.
TPR has also launched a ‘pensions market innovation hub’ to review ideas and help foster innovation at an early stage and to provide guidance on risk tolerances.
“This will provide the regulatory guardrails and enable safe experimentation of new business models and pension technologies,” Delfas said.
