The income provided at retirement from DC pension schemes depends on factors such as contributions paid into the scheme by individuals or employers and the fund’s investment performance. Under the new approach announced by TPR, which followed a successful 14-week pilot, DC trust based schemes will be divided into four segments for supervision by TPR: monoline master trusts, commercial master trusts, non-commercial master trusts and collective DC schemes, and single and connected employer DC schemes.
Each segment will have different tiers of engagement from TPR based on the risks presented to market and saver outcomes. Schemes in the monoline and commercial master trust segments in particular will have assigned TPR teams with expertise in business strategy, financial analysis, governance and investment.
Daryl Morris, Consultant at Quantum Advisory, said: “TPR’s new approach to supervision and regulation of DC trust based schemes, by dividing them into four segments for supervision, looks to be a move in the right direction. This strategic, risk-based approach to supervision should lead to quicker identification of risks and improved influencing of key decision-making, resulting in improved compliance and saver outcomes for members.”
It is expected that the new approach will enable TPR to communicate its expectations more effectively, leading to an improved understanding of risks, focus on compliance and a reduction in regulatory burden. Building on the open and constructive discussions held during the pilot scheme, TPR will also be prioritising and encouraging transparent dialogue with trust based schemes to help identify opportunities for savers.
Daryl said: “As Sam Grutchfield, TPR’s director of defined contribution and master trust supervision, highlighted when launching the new approach, the next decade’s challenge is ensuring that pensions deliver real value for money. Any new policy or approach that aims to deliver better member outcomes should be applauded. By reducing the regulatory burden with more efficient targeted requests, TPR are making all the right noises. Given that there are now millions of UK employees using master trusts, TPR’s new approach aims to tackle the challenge of getting these members real value for money. We hope that the success of the pilot transpires across the board.”
The new approach will not affect contract based DC schemes such as Group Personal Pensions (GPPs) which fall under a different regulatory body, the Financial Conduct Authority (FCA).
Daryl added: “While contract based defined contribution schemes fall under the FCA, and are not directly affected by TPR’s proposed changes, it will be interesting to see if they become increasingly perceived as lower quality products. Following the government’s Mansion House proposals in November 2024 to move towards DC megafunds and introduce contractual override, the tide appears to be pulling away from contract based products unless they remain competitive and provide good value for members when compared to master trusts.”
TPRs oversight of largest DC schemes is evolving
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