The right (and wrong) types of pension scheme consolidation

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Our vision for the future of occupational pensions is one where all savers are in schemes that have excellent standards of governance that deliver good value. Over time we think this will mean having fewer, but better governed schemes in the market. – TPR

The Pensions Regulator has up an important consultation on the future of small occupational pension schemes, You can read it here.

David Fairs, the new head of policy, opens the consultation with an admission that

Despite the wide reach of the (21st Century Trustee0 campaign, there remains a subset of disengaged trustees that are either unable or unwilling to take action to improve scheme governance, particularly in relation to small and micro schemes

and makes it clear that this is very much about “pension saving”

We know that poor governance is likely to lead to poorer outcomes for savers and we cannot allow badly run schemes to carry on putting their savers at a disadvantage.

For the first time in a long time, the Pensions Regulator are actually consulting on behalf of the consumer (rather than employer, PPF or themselves).  I think this is a very good consultation.

The problem

For those who doubt the correlation between small and ugly, TPR is quite clear.

We continue to see a strong correlation between scheme size and governance behaviours, with smaller schemes often associated with lower quality of governance and administration. (p6)

And in case you missed the evidence in Jo’s post  (which comes a few pages later)

Just 1% of small schemes (12-99 savers) & less than one fifth of medium schemes (100-999 savers), are doing “everything” essential to assess & deliver value for savers (p13)

The solution

TPR see three remedies for this problem

  • Trustee knowledge and understanding, skills and ongoing learning and development
  • Scheme governance structures for effective decision-making

and for schemes that simply don’t get the above

  • Driving DC scheme consolidation

I think these the right priorities.


The Regulator asks us three questions

Question 1: Do you agree that the expectations set out in the 21st century
trusteeship campaign (Annex 1) is a good starting point for defining a minimum
standard for trustee knowledge in the code? Is there anything else that should be
added that would be necessary for all trustees to know?
Question 2: Should there be legislative change for trustees to demonstrate
how they have acquired a minimum level of TKU, for example through training
or qualifications?
Question 3: Should there be a legislative change to introduce a minimum level of
ongoing learning for all trustees, for example through CPD-type training? If so,
how many hours a year would be suitable?
Question 4: Do you agree that we should set higher expectations on levels of
TKU held by professional trustees in the code, recognising that they typically act
across multiple schemes of various types, size and complexity?

It is high time that all Trustees, but especially paid trustees, got it in their heads that simply having been knocking around a few years is not a fiduciary qualification.

The grim determination of many trustees to hang on at all costs is one of the main reasons for the lack of diversity in age, mindset , gender and ethnicity of trustee boards,


In a partiularly well written section of the consultation , the Pensions Regulator goes on to to argue that greater diversity among trustees will lead to greater fairness to members, The onus is very much on “comply or explain” as TPR asks

Question 7: Should there be a requirement for UK pension schemes to report to the regulator on what actions they are taking to ensure diversity on their boards? Should such a requirement be limited to schemes above a certain size? How should such a report be made to us?

From the tenor of all the rest of the report , the issue of size is not expected to determine the quality of governance, If a scheme has too little resource to manage the job properly, it should not be doing the job at all.

TPR says they would welcome views on whether they should seek legislative change to mandate the appointment of a professional trustee onto each pension scheme board in the future.

I would say – subject to Professional Trustees submitting themselves to the same diversity test that is expected of all trustees – proposals for which are laid out in the consultation

TPR estimate that currently 30-30% of schemes have a professional trustee, it will be interesting to see how this number is driven up. Will it be through small schemes consolidating to schemes with professional trustees or will smaller schemes spend on professional trustees, i suspect that TPR pressure will force consolidation in more cases than not.

I am pleased to see the consultation questioning the value of sole trusteeship. Outsourcing stewardship to a third party is one thing, but that third party must not exclude diversity and cannot be allowed to become the employer’s funding negotiator, as some IGCs have become the playthings of contract based providers.


In a construct that David Fairs is surely proud of, TPR’s  velvet glove, iron fist approach is clearly laid out

Any schemes that are unable or unwilling to improve their governance standards will be given the opportunity to wind up their scheme and move savers to a well-run alternative

I am less happy with the territorialism of this statement

We anticipate the route most of these schemes will take is to consolidate into a master trust, although employers may also choose to provide a Group Personal Pension (GPP)plan, which savers may choose to transfer their benefits to…..

Our confidence in the quality of master trusts is borne out by our annual DC survey, where they consistently perform better against our KGRs than other DC scheme groups.

There is a lot more to the choice of workplace pensions than is included in TPR\s annual DC survey. TPR should be spending more time with the FCA.


Although it touches on DB consolidation, this consultation is really about the 38,000 DC schemes – most of which are derelict.

It is high time that the rate of attrition on these schemes was speeded up. The completion of the master trust authorisation process is a trigger to do this and this consultation is timely.

It’s very well written and I look forward to responding, As I have said many times recently, the regulation  of DC pensions cannot continue to be siloed, TPR and FCA must work together if consumers interests are to be properly served.

The fundamental questions of governance in this paper aren’t going to be solved by TPR alone, they are going to require a sea-change in the behaviour of trustees, including professional trustees. I am far from sure that most trustees are of an age or desire to change.

So I see the consultation moving TPR to start treating trustees as the FCA treats advisers, which will be a shock for many of them.

Pension pounds

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to The right (and wrong) types of pension scheme consolidation

  1. Giannis Waymouth says:

    A thoughtful review, Henry, thank you. G

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