This insight provides a round-up of TPR news and a brief report of TPO’s latest Pensions Dishonesty Unit determination.
The Pensions Regulator (TPR) round-up
DB and hybrid scheme return – updates
It will soon be time for defined benefit (DB) and hybrid schemes to complete their scheme return via Exchange – they are being issued from December and must be submitted to TPR by 31 March 2025. The 2025 return will include a rename of the ‘record-keeping’ section to ‘scheme member data quality’ and additional questions on data quality to fit in with TPR expectations and the general code. In particular, TPR will ask if data has been measured in the last year rather than in the last three years. There will also be new questions on scheme membership and on investment consultants – on the latter, whether their performance has been reviewed against objectives, when the objectives were last reviewed and if no review has taken place, why.
TPR moving to ‘prudential-style’ regulation
TPR is moving to a ‘prudential-style’ of regulation to ensure that members are protected from not just individual scheme risk but wider systemic risk including in relation to the financial ecosystem. This will ensure that TPR’s regulatory approach evolves in accordance with the shift towards fewer, larger schemes and more concentrated service providers and professional trusteeship – modelling shows that by 2034 there will be seven master trusts with £50bn+ of assets under management and four of these will have in excess of £100bn each.
TPR will utilise a new regulatory toolkit including risk-based and tiered master trust supervision, investment in digital, data and technology and a new ‘pensions market innovation hub’ for product development.
Its focus will be on three key areas: (1) investment governance; (2) improving data quality standards; and (3) formal engagement with the largest ten professional trustee firms that are currently responsible for over £1 trillion of assets under management. Defined contribution (DC) governance will also be ‘completely’ reorganised and split into four sections depending on specific features; monoline master trusts, commercial master trusts, non-commercial master trusts, and single employer trusts and collective DC schemes.
TPR notes Bank of England report which demonstrates that liability driven investment (LDI) resilience has improved
TPR has welcomed a Bank of England system-wide exploratory scenario exercise report which Nausicaa Delfas, Chief Executive at TPR, noted “shows that pension schemes are now more resilient to extreme market movements”. This follows the turbulence in financial markets and the pension fund LDI sector following the 2022 ‘Mini-Budget’ and TPR’s subsequent issue of LDI guidance in April 2023 for management of LDI risks and improving resilience to market events.
Working with the Prudential Regulation Authority, the Financial Conduct Authority and TPR, the Bank has reached six key financial stability conclusions and recommended next steps in respect of each conclusion. These concern risk management, policymaking and risk monitoring.
Amongst the conclusions and next steps are that: (1) UK markets should continue to be monitored to ensure that resilience remains appropriate; (2) authorities and market participants have taken steps to improve resilience, but more work is required to address other weaknesses revealed by the exercise; and (3) TPR is going to improve current data collection which should protect against selling pressure speed surpassing purchase volume and other corporate bond market operational risks. The report demonstrates the importance of system-wide stress exercises, notes how the Bank will be adopting these going forwards and recommends that other financial institutions also build them into their risk management systems. Further detail can be found in the report.