Pensions Regulator to overhaul workplace pension regulation

The changes follow a major review by the regulator of its approach to regulation, and have been designed to reflect the new "political, economic and pensions landscape". They include dedicated one-to-one supervision for the UK's biggest defined contribution (DC), defined benefit (DB) and public service pension schemes; and higher volume supervisory approaches to reflect emerging risks.

Chief executive Lesley Titcomb said that the regulator intended to be "clearer, quicker and tougher" with the schemes that it regulates.

"Schemes across all sectors, whatever their size, can expect the volume and frequency of their interactions with us to increase so that potential risks to pension savers are identified early and put right before it becomes necessary for us to use the full force of our enforcement powers," she said.

"An important element of our new approach will be the use of a broader range of communication channels to drive behavioural change by promoting greater understanding of what schemes need to do in order to comply with the law and demonstrate high standards. This was a vital ingredient in the success of automatic enrolment amongst employers and we look forward to developing a closer relationship with schemes, both large and small," she said.

The new approach will come into force next month and become fully operational over the next 12-18 months, according to an update published by TPR (13-page / 1.25MB PDF). Two significant regulatory tools will be introduced: one-to-one supervision for the largest schemes; and higher volume supervisory approaches for a broader group of schemes.

The one-to-one supervisory approach will involve regular, ongoing contact by TPR with trustees or managers and sponsoring employers of 'strategically important' schemes, selected based on their size, risk and previous interactions with TPR. This will initially be introduced for 25 schemes, and be rolled out to more than 60 schemes over the next year.

TPR will also proactively target a broader group of schemes for higher volume supervision, targeting particular risks identified during its intelligence and horizon-scanning activity. This second type of intervention will be piloted with approximately 50 DB schemes to assess their compliance with the messages in TPR's 2018 annual funding statement, with a particular focus on whether schemes are being treated fairly when sponsoring employers take the decision to make dividend payments to shareholders. TPR expects that "hundreds of schemes" will ultimately experience this type of intervention.

The regulator will analyse responses to its initial contact with schemes and sponsoring employers, which can expect more intense regulatory activity if concerns are not properly addressed. This could include face-to-face meetings to agree actions; issuing formal improvement notices; or use by the regulator of its enforcement powers.

TPR's new approach to supervision takes effect at the same time as a new supervisory regime for multi-employer 'master trusts' takes effect. The new regime comes into force on 1 October, and will require master trusts to demonstrate that they meet certain criteria and apply for TPR authorisation. Existing master trusts that do not apply, or which are refused authorisation, will be required to wind up and exit the market.

Pensions expert Tom Barton of Pinsent Masons, the law firm behind Out-Law.com, said that the regulator's new approach reflected the fact that workplace pension schemes, as the "delivery vehicle" for automatic enrolment, were now home to "huge numbers of UK workers and growing pots of money".

"The Pensions Regulator is already advanced in its proactive regulation of the commercial end of the workplace pension scheme spectrum," he said. "These new developments bring that proactive style of regulation to a wider audience."

"This means workplace schemes, starting with the very largest, will be under the microscope. The general legal requirements remain broadly the same – it is the expectations around standards of compliance that are increasing. For this to work, we need to get workplace schemes getting that compliance piece spot on. We also need the regulator to help schemes with this by being very clear about expectations," he said.

Barton said that it was interesting that TPR was putting large schemes at the centre of its new approach at the same time as identifying governance concerns with small schemes.

"I don't think we should see this as small schemes getting off lightly," he said. "Indeed, those small schemes are now having to do some soul-searching as to whether they can continue to provide value for money. It all seems to be part of the push towards fewer, larger, highly regulated workplace pension schemes – commercial and non-commercial."