DC pension plan? It looks foreign….

I am pleased to see that TPR is revamping its regulation of DC. It has made an announcement of the framework it is creating to focus its efforts on master trusts and what it will be doing for other forms of DC “pensions”. I cannot call any DC pensions a DC pension other than the collective DC plan operated by Royal Mail which pays a pension to its membership.

Here is the evidence

I suspect that this has not been properly picked up by the pensions press who are more intrigued by warming the hands of advertisers. I quote from the press release

The shift in approach will see schemes split into four segments of supervision:

• monoline master trusts

• commercial master trusts

• non-commercial master trusts and collective defined contribution schemes

• single and connected employer DC schemes

While driving high levels of compliance will still be a priority, TPR is also seeking open and transparent dialogue to help schemes capitalise on new opportunities which benefit savers.

This is a different tone and suggests that bigger things are coming, in line with Nausicaa Delfas’ recent statements and this blog’s recent and not so recent calls!

Sam Grutchfield, TPR’s Director of DC and Master Trust Supervision said:

“The challenge of the last decade was getting people saving. The challenge of the next is to make sure pensions deliver real value for money.

“With a more strategic approach to supervision, we can make effective, scheme-specific interactions using real-time data to spot scheme-level and wider risks sooner.

“There will be fewer, but more targeted data requests, and more focused, expert-to-expert meetings, allowing us to influence key decision-making in real time improving regulatory compliance and saver outcomes.”

This rather vague tone should not fool us. Something is going on for all this talk of improving “member outcomes“.

I cannot call a pension system which so far has produced only one pension, a success. What the defined contribution system is , as Sam says it is, a savings scheme. We have the savings system in and no doubt it can be more ambitious as schemes grow and consolidate into bigger schemes. We may end up with a handful of DC schemes but we still only have the Royal Mail CDC scheme that is paying pensions.

In my view, people like me, who have saved into DC all their lives have a right to the pension they were promised. By that I do not mean a wealth plan with the option to draw down as I please. That is not a pension, it is a mess that needs either an adviser or a fortune teller.

I mean a collective scheme where people support each other through mutuality. Those who live longest get most , those who do not live so long do not have to worry, they have need of an income when they are dead. Wives and certain partners may get a pension , there may be upgrades to pensions for those who are ill and staring death in the eye (I know what that is like).

We need DC schemes that think about the outcomes of the saving process and we need the people who manage DC schemes to start thinking about what happens to all these savings. If they haven’t got a clear idea of what is coming, then perhaps they should read the oversight  report that accompanies the press release. It bizarrely differentiates master trusts from DC schemes. What is going on? Are master trusts not DC plans?

There is – in the press release a curious paragraph

The master trust authorisation framework was set up in 2019 to make sure businesses governing the DC pensions are well run, well governed and financially solvent. Today nine in 10 trust-based DC pensions are in master trusts.

I can’t make head or tail of the final sentence, I wonder if there is a code that creates that kind of language.

I am not sure what this new DC regulatory landscape is bringing us and I think that TPR may be confused themselves but I am giving them the benefit of the doubt.

If we get to a point , as a result of all this, that the Pension Regulator starts regulating DC savings plans as pensions , we will have moved on a long way. If we can return to a point where DC savings plans morph into invested pension plans that do not de-risk as if “lifestyle” made sense to ordinary people, then GOOD!

Lifestyle should be dead, it assumes that , wealth pots, cash and annuities are the only options available to savers. What savers want is more than a tax-advantaged savings scheme, people want a retirement income that they know as a pension.