The Pensions Regulator has revealed plans to tackle sub-scale defined contribution schemes, after it emerged DC scheme membership had exceeded DB membership for the first time.
Released today (27 January) TPR’s annual DC trustee report revealed there were now 14.8 million members of DC schemes, compared with 11.7 million in DB schemes.
The regulator put the surge in DC membership down to auto-enrolment, which has seen more than 7 million people join DC schemes since it was brought in four years ago.
The regulator expressed concern that a large number of schemes offering auto-enrolment were small, single-employer schemes that were not subject to the strict new regulations affecting master trusts.
Andrew Warwick-Thompson, executive director for regulatory policy at TPR, said: “We have now passed a significant point in UK private sector pensions provision with 55 per cent of all private sector pension scheme members and 85 per cent of active members being participants in DC schemes."
He said master trusts had played a "major role" in the success of AE, but added that this fact illustrated the need for much tighter regulation, as set out in the Pension Schemes Bill.
However, he said this needed to extend to the thousands of schemes that are not multi-employer master trusts.
"We need to ensure a level playing field for the protection of consumers investing in contract-based and trust-based multi-employer pension plans, and it is clear that market forces alone would not have achieved this outcome," he said.
The report revealed that there were now 34,500 DC schemes in the UK, down 2 per cent on the previous year.
Most of those were "micro schemes" with between 2 and 11 members, while around 23,000 are "relevant small schemes" - otherwise known as Ssas.
From a regulatory perspective, TPR said it was most concerned about the 750 DC schemes being used for the purposes of auto-enrolmemt, 360 of which fell into the "micro scheme" category.
“Our concerns are rising about the fragmentation of DC provision and the persistence of a tail of sub-scale schemes," Mr Warwick-Thompson said.
"In our opinion, these pose an unacceptable risk to consumer protection. The consolidation trend we have observed and welcomed in previous years has slowed."
He said it was "unacceptable" to have two classes of DC pension saver, which he classed as "those that benefit from the premium of scale and good governance and administration, and those that do not".
He said TPR was planning to address this issue this year.
“We will launch details of the implementation phase of our 21st Century Trustee initiative later this year, with a clear objective to raise standards of trusteeship and take regulatory action against those trustees who persist in failing to meet the required level of competence.
"Through the introduction and implementation of the new authorisation and supervision regime for master trusts we will seek to create a secure, scalable and value for money cornerstone of the multi-employer DC savings market.
"We recognise there are some barriers to consolidation in the DC market, such as the requirement for actuarial certificates, and so we support the Government’s recent call for evidence on ways of removing these barriers," he said.
james.fernyhough@ft.com
