The Pensions Regulator has published a new blog. It is republished here with kind permission of its author and its CEO.
At The Pensions Regulator (TPR), we are committed to protecting savers’ money, enhancing the pension system and supporting innovation in the interests of savers. Innovation is something we are increasingly seeing in our evolving pensions landscape.
One innovation hot spot is scheme consolidation. In both the defined contribution (DC) and defined benefits (DB) arenas we are moving towards fewer, larger pension schemes. We believe that the benefits of economies of scale, strong governance and access to investment expertise in larger, better-resourced schemes will help to drive stronger outcomes for savers.
And, reflective of the improved funding positions many DB schemes find themselves in, new models and propositions are making their way into the market in response to increased demand for consolidation options.
We are pleased that in the past few months the superfund market has gained traction with the first two transactions to Clara Pensions. We want to see an emerging competitive superfunds market that offers enhanced security for savers. Ultimately, these are commercial vehicles. We will shortly be publishing our approach to the profit release mechanism in superfunds to provide the right balance between commercial incentives and saver protection.
In a blog post last November, we told you to expect to hear more from us in relation to innovation in the DB market. We continue to develop our regulatory approach to DB alternative arrangements, including capital backed journey plans (CBJPs), which are being proposed as an option in scheme rescue scenarios. We are looking at this area with our focus being on savers receiving their full benefits. We also plan to publish new DB alternative arrangements guidance later this year to help trustees (and employers) navigate alternative arrangements, including CBJPs.
We and government believe that innovation is fundamental to delivering better outcomes for savers. We are keen to support new market propositions where they provide both a clear benefit to savers, and also have the right protections around them. One cannot come without the other. That is why sometimes we have to sound a note of caution.
One potential innovation proposition – which straddles both DB and DC – needs very careful thought: a possible new offering to pay DB pensions to DC savers who transfer into it. We can see the potential in supporting the development of a new option for DC savers at retirement. Savers need new products to sit within appropriate regulatory and supervisory frameworks, and our priority is to make sure protection is balanced with innovation in saver interests. We, other regulators and government are continuing to consider whether a solution like this one could be supported, and we would not expect the market to develop further until this question has been resolved.
Enhancing the pensions system and supporting innovation in savers’ interests are foundations of our strategic approach. TPR is ready to engage positively with pension providers considering bringing new propositions to market and welcome options that offer trustees greater choice, while ensuring appropriate protection for savers. We also expect trustees considering transferring savers into a new type of scheme to engage with our market oversight team to make sure that they are meeting our expectations to protect savers.
We want to work with the industry, government and other regulators to realise this vision. Ultimately, we owe it to savers to ensure they are protected and that new market innovations bring improved outcomes and security in retirement.
By David Walmsley, Interim Director of Supervision – Market Oversight