Compliance crackdown and more data transparency to boost retirement outcomes

The regulator plans to engage with hundreds of schemes to better understand how they are measuring and refining their data, with action taken against those that fall short of disclosure expectations. It has also streamlined protocols to ease the compliance burden for schemes and businesses.

Delfas told a Professional Pensions Live event on 22 May that the regulator’s role was “not only in tackling harm but as a convenor, critical friend and supporter of future market development”.

“Our approach to the market will not be static because we will be flexible and responsive to risks as they emerge,” she says.

Delfas outlined the regulatory roadmap for pensions to build value for defined contribution savers, security for defined benefit members and promote higher trusteeship standards for all.

Employers urged to scrutinise employee pension offering

More than a third of defined contribution holders aged 45 and over struggle to understand their decumulation options. “The millions of people now saving for retirement deserve the market to work for them,” Delfas said. “They need the system they save into to be the best it can be for savers.”

Businesses have been encouraged to closely examine the impact of investments and default strategies on the outcomes for employees.

“Ahead of this new era of transparency on value, we need employers to start asking the right questions of those tendering to provide their pension provision,” Delfas says.

The defined benefit schemes have experienced a challenging funding environment, with a decade or more of low interest rates creating funding gaps. Trustees must examine risks and opportunities for members to get the best possible outcome for members.

Delfas says the regulator can “help trustees understand the kinds of considerations they should be taking into account and to set our risk tolerances for their future approach”.

Improved data in defined benefit schemes is likely to make small schemes more attractive to master trusts and provide choice in consolidation. But there are opportunities for creative solutions to deliver more for savers, aided by transparency through open standards, open data and common protocols to exchange data.

“This drive to improve data quality and the openness of data has been driven by new requirements in climate reporting, the upcoming value for money framework, and of course, the ever closer start of Pensions Dashboards,” Delfas says.

The regulator’s latest Compliance and Enforcement Bulletin from July to December 2023 shows how it used its wider frontline regulation and automatic enrolment (AE) powers to protect savers in the six months to December 2023, issuing 29,489 compliance notices, up 17 per cent year-on-year.

Challenges remain amid shift to industry consolidation

Delfas cautioned that challenges remained in the pension sector. These included the shift to defined contributions pensions, with new consolidation models, the changing role of trusteeship and guiding savers to make sustainable decisions about their retirement.

The defined contribution market, which combines contributions from employees, employers and government tax relief, has more than 28 million memberships and £158 billion assets under management, despite a 11% reduction in schemes year on year. Some 90% of memberships are in master trusts where rapid growth is expected to be focused in a handful of schemes.

In defined benefit pensions, just 4% of private sector pensions schemes are open to both new members and future accrual. Funding levels across the market are healthy, with more than 80% of schemes fully funded. New models to support schemes are being developed, and trusteeship expectations have shifted to a stronger focus on investment stewardship, partly driven by the government’s Mansion House Reforms.

Professional and sole trusteeship models are increasingly prevalent. Delfas said data showed that the 10 largest firms accounted for the management of more than 2,300 pension schemes with a combined asset value exceeding £1.1 trillion. More innovative product offerings are aimed at helping savers navigate complex choices about their retirement.

Master trusts have high levels of governance and administration and are transforming into large and complex financial institutions. In less than six years, Delfas estimates more than three quarters of trust-based defined contribution members could be in schemes worth more than £50 billion and will have strong influence over the retirement outcomes of millions of savers.

She says the regulator will target more schemes with assets under £100 million that are required to comply with their duty to conduct detailed assessments of value for members, and has already issued fines for breaches.

“We have seen that just by approaching schemes, reminding them of their duties, and setting clear expectations, that some choose to act in their members’ best interests and wind up,” Delfas said.

Financial adviser calls for real-time data, tech improvements and more consultation

Matt Bell, chief executive of Prosperity Wealth Limited, welcomes real-time pension data.

Matt Bell, Chief executive of Prosperity Wealth Limited, applauds any initiative that helps accountants and financial advisers with compliance.

“Any legislation which ensures that the contributions have been paid at the correct level and within the required timescales will only help the accountancy industry,” he says.

Asked about what measures would help accountants navigate pension schemes, Bell says the ability for accountant payroll systems to link to workplace pension providers to give real-time information saves employers from having to share data on a weekly, monthly or annual basis to their accountant. “If this link was mandatory for all workplace pensions, this would help all accountants,” he says.

Bell believes more targeted, personalised measures would help small businesses.

“Many employers and small companies are left to navigate pension schemes and auto enrolment rules with only the help of online guides,” he says. “This can be very confusing for the firm and they then lean on their accountant or financial advisers for additional support.

“Government grants for start-up and smaller businesses which they could then spend paying for this additional support would be of great benefit.”

Stronger consultation with the pension and accounting industry would reduce red tape from a change in legislation or rules.

“The red tape in the pension industry is normally caused by governments deciding new rules or legislation without adequate consultation with the pension and accounting industry,” Bell says. “Less government changes and more time given for the industry to digest and make the required changes would help reduce the compliance burden. More detailed discussions and consultation with pension providers and accountants would also help.”

Matt says technological improvements including AI, online meetings and real-time reporting have reduced the demand for traditional bookkeeping support.

“Accounting firms will need to invest in these technological developments and unfortunately the smaller traditional accountant firms may not be able to fund improvements at the required level,” he says..

“Fortunately there are still ’sweet spots’ where a SME-sized accountant will have the required funding resources to invest in technology and at the same offer a more flexible bespoke service than a national.”

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