Change is coming – we must grasp this opportunity in savers’ interests

It is inescapable that pensions are at a moment of significant change.

We are in effect straddling two worlds, gradually moving from one to the other.

A past, where employees were promised a generous set income in retirement, and where employers bore the risk in making good on that promise. To a future, where many more people are saving for their retirements, but the risk is entirely on them.

A past where we had one employer, one scheme. And a future, where we have a marketplace competing for business. This requires schemes to operate differently and a different type of regulation.

We are now all on a journey towards, fewer, larger, well run pension schemes. It is my firm belief that this will help to deliver better outcomes for savers.

Scale brings benefits. Not just in economic terms through the ability to invest in a broad range of diversified assets and drive cost efficiencies. But also significant enhancements to standards of governance and the potential ability for service innovation.

That is why as a regulator we are supportive of the pensions elements of the government’s autumn statement.

We need to drive consolidation in savers’ interests so that only good schemes remain

We have a fragmented defined benefit (DB) pension schemes landscape with over 5,000 schemes representing some 9 million memberships. I want those members in small schemes to benefit from the security that scale and appropriate risk management provides. That is why we welcome plans for a public sector consolidator and the commitment to bring forward superfund legislation in the future.

In defined contribution (DC) schemes, the value for money framework is critical. That is why we continue to work with the Financial Conduct Authority and Department for Work and Pensions to help bring a consistent disclosure and assessment framework to fruition across all DC schemes, whether contract or trust based. We have set out in our new statement on value for money (VFM) how collectively we will progress the framework.

In tandem, we will evolve our supervisory and enforcement approach to provide effective market oversight of master trusts encouraging ever better outcomes, as well as come down hard on schemes of all sizes not delivering for savers.

We need to raise the standards of trusteeship

Trustees have a fiduciary duty which contains valuable protections for pension savers including a duty to act in their best interests. We should not underestimate how powerful that is. But those trustees have to have the capability to really deliver good outcomes for savers. Most savers would expect that those governing their hard-earned savings were suitably qualified – and yet we know 1 in 5 trustees have never read one of our codes. That is why we support plans for a trustee register which will help us get a firm grip on trustees and raise standards across the board.

We need to help savers at retirement

Thanks to automatic enrolment, over the next decade the assets held in DC workplace schemes by over-55s in work, will increase by nearly threefold to £527 billion.

Those people, and the people yet to come, will be faced with incredibly complex choices about how to support themselves in retirement. The market needs to provide a suite of value for money products and services that work for different savers and different retirements. And we all need to work together to guide savers toward the right solutions for them.

That is why we support the government’s plans for all schemes to either offer or partner with providers who can help savers turn their pension pot into a retirement income and we will develop guidance to support trustees in achieving this.

Evolving together

Achieving our vision of fewer, larger, well-run schemes that deliver good outcomes by default will require us to change as a regulator.

Ensuring compliance with the law remains fundamental, but we also have a role in broader market oversight, understanding market dynamics as a whole, sharing what good looks like, and fostering innovation in savers’ interests.

That means working with the full extent of the pensions eco-system, not just those parts that fall under our regulatory remit. It means sharing information and working together with others in the regulatory family to come to joint solutions to ever more complex problems. And it means harnessing the power of data and digital to really empower our pensions experts to assure that schemes always deliver for savers.

When the Private Members Bill automatic enrolment reforms are implemented, we will see 18-year olds-saving into a pension. They may have more than 50 years of working lives.

What future will they find?

It is incumbent on all of us to make sure they have a pension system fit for the future: change is coming, and we must all grasp the opportunity in savers’ interests.