Pensions UK has urged policymakers to adopt a proportionate and outcomes-focused approach to pension governance reforms, warning against overly prescriptive rules in responses to consultations on trusteeship and the Value for Money (VFM) Framework.

In its response to the Department for Work and Pensions’ (DWP) consultation on trustee governance, the industry body said the UK’s trust-based pensions system already benefitted from a strong governance framework and that reforms should focus on strengthening trustees’ ability to govern effectively rather than adding new procedural requirements.

Pensions UK stressed that the pensions landscape was becoming “more consolidated and complex”, with larger schemes and megafunds placing greater expectations on trustee boards.

As a result, it argued that governance reforms should prioritise board-level capability, strong adviser support and proportionate regulation.

Indeed, the organisation warned that the cumulative regulatory burden risked absorbing trustee capacity and shifting focus away from strategic oversight toward compliance activity.

“Effective governance depends on trustees having the time, support and confidence to exercise judgement,” it said, adding that regulation should remain principles-based and focused on member outcomes.

The response also emphasised the need to maintain a sustainable and diverse pipeline of trustees as schemes consolidate.

It argued that trustee capability should be assessed collectively at board level rather than through rigid individual technical requirements.

Pensions UK members also expressed caution over proposals to introduce numerical limits on the number of trustee roles an individual can hold, suggesting that a hard cap could be both “over- and under-inclusive” given the wide variation in scheme size and complexity.

Instead, the organisation recommended improving transparency around trustee appointments, including the potential creation of a central register to improve visibility of roles and capacity across the market.

It also raised concerns about the growing concentration of professional trusteeship among a relatively small number of firms, warning that this could pose systemic risks if governance models became too concentrated.

On administration, Pensions UK noted broad support for raising standards but warned that poorly calibrated reforms could increase costs or reduce market capacity, particularly if providers exited the market.

Administration failures could have “significant consequences for savers”, it stated, suggesting that greater oversight by The Pensions Regulator (TPR) may be appropriate as schemes increasingly relied on outsourced providers.

Meanwhile, in a separate response to the consultation on the proposed VFM Framework, Pensions UK backed the overall direction of reforms but urged regulators to adopt a cautious implementation approach.

The organisation argued that the framework should be introduced with a “light-touch” first year focused on identifying the worst-performing schemes, allowing time for the industry to adapt before full ratings were applied.

It warned that rushing implementation could lead to unintended consequences, including discouraging diversification and investment in private markets.

“The way investment returns are assessed risks leading to greater caution, if not herding behaviour, making private market investment more challenging,” the response stated.

Pensions UK recommended that the first year of the framework use a simplified rating system that identified only clear underperformers, enabling regulators and schemes to test assumptions, data definitions, and reporting processes before the full framework was applied.

The organisation also raised concerns about the proposed 'amber' rating category, warning that severe consequences attached to the rating could trigger a “death spiral” for schemes by deterring new employers and undermining confidence.

Instead, it suggested that schemes receiving an amber rating should initially be required to produce an improvement plan rather than face immediate closure to new business.

Elsewhere, Pensions UK broadly supported the introduction of forward-looking metrics within the framework, arguing that they could help capture long-term investment strategy and avoid excessive focus on short-term costs.

However, it stressed that such metrics required robust safeguards to avoid gaming and misleading comparisons between schemes.

The organisation also supported the creation of a central VFM database to improve transparency across the market, although it warned that data should be published alongside contextual information to avoid misleading league tables.

Overall, Pensions UK said both sets of reforms must strike the right balance between strengthening oversight and maintaining flexibility.

“A proportionate, outcomes-focused framework that strengthens trustee capability, supports diversity of thought, reinforces administration resilience and maintains flexibility across different scheme models is most likely to deliver sustainable improvements,” it concluded.

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