New TPR approach to put pension schemes under greater scrutiny

db-pensionThe Pensions Regulator (TPR) has announced a shift in its approach to workplace pension regulation, meaning schemes will face increasing scrutiny and a greater likelihood of intervention, from October 2018.

Following a review of its operating model, the regulator will introduce a new supervision regime to monitor schemes more closely and identify risks, outlined in its TPR future, making workplace pensions work report, published yesterday (17 September 2018).

Lesley Titcomb, chief executive of TPR, said: “Following a complete review of our entire approach to regulation, we are now implementing a radical shake-up of the way we regulate to embed our pledge to be clearer, quicker and tougher.”

According to the report, all schemes will be more likely to experience interventions, with the expectation that improvement actions will be undertaken in a timely manner to reduce risks. The TPR has further announced that this will, in particular, affect defined contribution (DC) schemes, which have received limited intervention up to this point.

Defined benefit (DB) schemes will also experience an increased likelihood of intervention concerning their annual valuation and the reduction of deficits. The report noted that DB schemes will start to receive communications requesting specific improvements to be made.

Titcomb added: “Our new model is flexible. We will take a systematic approach to set out our expectations and will respond swiftly to emerging risks, taking tough action where necessary to tackle bad behaviour, including by corporate entities.

“An important element to 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 among employers and we look forward to developing a closer relationship with schemes both large and small.”

In what it describes as more proactive work, TPR will introduce one-to-one supervision for 25 of the biggest DB, DC and public service (PS) schemes from autumn 2018, and roll out this approach to more than 60 schemes through 2019.

The aim of this is to monitor some of the largest and riskiest schemes, as well as to clearly outline expectations and intervene more quickly where there are concerns.

In addition to one-to-one contact, higher volume supervisory approaches are being introduced from October 2018, to address risks and influence behaviours in a broader group of schemes. This second type of intervention will be piloted with approximately 50 DB schemes.

Kate Smith, head of pensions at Aegon, said: “The publication by TPR clearly demonstrates that the regulator is upping its game by increasing scrutiny of all pension schemes, including one-to-one supervision for higher-risk schemes.

“The new master trust rules have already shown the regulator is keen to flex its powers and adopt a more FCA-style approach to regulation. This new regulatory approach should give consumers increased confidence in pension saving, regardless of the type of scheme they invest in.

“TPR’s interventionist approach is likely to impact the market, and over time we expect smaller and less robust schemes will wind up.”