As part of our new approach to pension regulation, we are now proactively supervising significantly more schemes as we strive to be clearer, quicker and tougher. Why have we made this change? Our aim is to better manage risks which we identify in the pensions market, ranging from inadequately funded schemes to insufficient record-keeping.
We are doing this by targeting hundreds more schemes through new initiatives across a broad range of areas. We are also building far closer relationships with schemes of strategic importance, and our latest Compliance and Enforcement (C&E) Bulletin highlighted how what we call ‘relationship supervision’ is going.
To date we have been working with 35 public service (PS), defined benefit (DB) hybrid and defined contribution (DC) schemes, and we will be extending this supervision to beyond 100 schemes this financial year.
Relationship supervision enables us to have one-to-one contact with the trustees, managers and sponsoring employers of pension schemes.
It helps us to assess the risks that schemes are subject to, clearly outline what we expect and act quickly where we have concerns.
Some schemes are chosen for supervision because of the risks they present or previous interactions we have had with them; others because they are of strategic importance to us.
One scheme featured in our C&E Bulletin highlights an attitude that we have heard from schemes: that they are wary of being selected for supervision. The word conjures up an idea of scrutiny and control. But in reality it is about advice, guidance and direction.
The chair of trustees and pensions director in this case expressed concerns about the value of engaging with us and the extra burden that supervision might place on the scheme. But they have since told us that it has been a positive learning experience.
The DC scheme historically had minimal dealings with TPR. Through our supervision, it was clear that while it was well run, we were able to offer a fresh set of eyes on a wide range of pensions issues, including suggesting putting in place succession planning for the chair of trustees and supporting the trustees in asking their external administrator for more detailed reporting.
Our new approach has also been noted by the industry. A survey by PwC found that eight out of 10 pension lawyers think TPR’s new approach and use of powers is having an impact on their clients. This is up from three in 10 in 2017 and is in part due to active intervention from TPR.
So far, our supervision teams have mostly seen high standards and well-run schemes. It is important to stress that including a scheme in relationship supervision does not mean we believe it is failing to meet our expectations.
Relationship supervision is not only focused on schemes of strategic importance. It also involves more direct contact with large numbers of schemes, using data we hold to target them in relation to particular elements of governance and administration. We’ll give clear direction about the standards that schemes are expected to meet and what the consequences of failing to meet those standards could be.
We have already begun to operate in this way. In relation to DB, we are initially looking at schemes where our data shows that deficit reduction contributions may not be proportionate against dividends paid to shareholders.
Our approach will be tailored to suit. We begin with dialogue, which leads to support and guidance and might move toward direction. If after this approach positive changes are not being made, we will move towards enforcement.
As well as relationship supervision, our new approach also includes event supervision, where our rapid response teams act quickly on reports of events which pose increased risks to schemes. This will generally involve events that affect the employer covenant supporting DB schemes, particularly corporate transactions or corporate distress.
We assess the impact of an event on a particular scheme and on our statutory objectives. Where we get involved, it is initially through the trustees as they are the first line of defence for savers and, if appropriate, we will engage directly with trustees, employers and other stakeholders to protect the interests of members.
This more front-footed approach was applied with the GKN / Melrose takeover, where we took the initiative and got involved much earlier than we would have previously.
It meant that much greater rigour could be applied and an outcome was reached with far less corporate anxiety and a better result for the pension scheme. Since the takeover took effect, we’ve continued to discuss the implementation of the agreed plans for the schemes with the trustees and with Melrose.
This is an approach we found beneficial for all parties concerned. Savers were protected, corporate entities learned, and we forged deeper and stronger relationships.
Where necessary, we will use our powers to prosecute people when they abuse their position and put savers at risk. We have used more of our powers, more often and been creative in using the law to protect savers.
We are testing our powers in the courts. We’ve prosecuted people for a range of offences such as fraud, making employerrelated investments, computer misuse, and wilful noncompliance with automatic enrolment.
But we are not an enforcement-led regulator. We’d much rather organisations worked within the law, within our guidelines and with us. We will not be complacent. As an organisation we will continue to adapt and change to meet the risks in the pensions landscape around us.
Our new long-term strategy, published for consultation later this year, will build on TPR Future and ensure we continue to be the clear, quick and tough regulator that we have pledged to be as we put the protection of savers at the heart of regulation.
Chief Executive – The Pensions Regulator