TPR outlines key challenges to all workplace DC schemes becoming ‘full-service providers’

The Pensions Regulator (TPR) has outlined seven key challenges it and the industry face in meeting its aim for all workplace defined contribution (DC) pension schemes to become ‘full-service providers’.

In a blog post, TPR interim director of regulatory policy, analysis and advice, Louise Davey, noted that the complex decisions pension savers face at retirement were complicated further by most trust-based DC schemes not offering decumulation services.

“Others provide only limited choice, forcing savers to transfer, unadvised, into the retail sector,” she continued.

“The pensions market is evolving rapidly towards fewer, larger, and better run pension schemes.

“Our vision, shared by government, is that, over time, all workplace schemes should become full-service providers. This would involve providing services for saving into a pension, accessing pension savings and post-retirement support.”

However, Davey noted that some schemes do not have the skills, capability or appetite to become full-service providers, and that reforms to achieve this should be guided by a consensus on ‘what good looks like’, as outlined in TPR’s five principles.

The first challenge highlighted was to determine how value for money is assessed in relation to decumulation.

Davey noted that while value for money meant investment returns, and services received, for the price paid in accumulation, it was not as simple in the decumulation phase, but it was clear that the focus must be on holistic assessment of value rather than cost alone.

Secondly, TPR wants to see more innovation in the design and range of products available to savers and, thirdly, the regulator stated that innovation was needed around how savers are engaged and given agency to make decisions, not just at the point of access.

The fourth challenge was that schemes need a clear insight of their membership, and data collection and quality needs to be improved, while the number of small DC pension pots was cited as the fifth challenge.

TPR also highlighted the “set of issues” when schemes obtain products from other schemes and providers in the retail sector, noting that while it was evident that schemes and providers would welcome the flexibility of using third parties to help construct their decumulation offerings, there were problems to address.

“My seventh and final challenge is that facilitating access to pension savings will be a capacity and capability challenge for some parts of the sector, including single employer trusts,” Davey said.

She continued: “As our chief executive has highlighted, the long-term expectation is that all schemes should offer retirement products either directly or through partnerships.

"Modern workforce pensions that offer accumulation and decumulation. If schemes will not or cannot make that offer, they will come under pressure to consolidate.

“To progress on these principles and tackle the challenges, we will engage with the sector through a series of virtual roundtables in the new year. These will inform interim guidance we intend to publish in 2024 which will provide clarity on key issues and encourage the sector to develop their offer early.”

To read TPR's full blog, please click here.

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