The Department for Work and Pensions (DWP) has published its review of the defined contribution (DC) master trust market, outlining the evolving regulatory approach The Pensions Regulator (TPR) will take.

Following its investigation, the DWP found that the master trust regime was fit for purpose overall, but that there were also areas that warranted further action by TPR in the medium term, and possibly further regulatory intervention or regulation by the DWP.

The government envisions that more than half of trust-based DC schemes will have assets of over £50bn by 2030, and three-quarters of members will be in these schemes, and that master trusts will account for a “huge portion” of this.

It stated that TPR will adopt a collaborative supervisory approach, which will focus on value and continuous improvement.

Furthermore, as part of an enhanced focus on investment governance, TPR will build on the current provision of investment data, pursuing an increased flow of more timely asset management and investment information.

It hopes that this will enable TPR to closely review strategic changes and understand trends in investment, building a market-wide picture and allowing the regulator to intervene to warn members at ‘timely moments’.

“This information will be used (alongside information already gathered) to drive better performance by challenging schemes at key moments and will include challenging how decisions are made and the expertise on trustee boards, and prompting schemes to consider their strategy if they are underperforming relative to others in the market, focusing on continuous improvement,” the DWP stated.

TPR will continually evaluate this strategy and explore further with the DWP whether any legislative changes would be needed to support the enhanced level of scrutiny.

The regulator will also expect trustee boards to have appropriate levels of expertise in investments and will consider how to mitigate against potential conflicts of interest arising from multiple trustee appointments.

Meanwhile, the DWP will support TPR in its focus on value, enhanced investment governance and strategy, and will consider legislative changes if needed.

It may also explore changes to the regime, including amending the regime to consider market withdrawals in the cases of mergers and acquisitions, the addition of risk notices, and the removal of pre-agreements in “tightly prescribed circumstances” if necessary.

Commenting on the review, TPR interim director of regulatory policy, analysis and advice, Louise Davey, said: “We want a master trust market increasingly focused on value, not just cost.

“Our evolved regulatory approach will put greater focus on investment governance, raise standards of trusteeship, build scale and expertise to facilitate investment in a diverse range of assets and ensure savers receive value.”

TPR published a statement welcoming the DWP's review, which said that the review outlined the steps the regulator would be taking towards a more influential and interventionist approach to master trusts.

"We have committed to enhancing the supervision of investment governance, challenging master trusts on investment decisions, and will focus on the value that members of master trusts are receiving, ahead of a legislative framework," the regulator stated.

Its statement noted that it had already engaged with schemes with assets of less than £100m that were non-compliant with the value for money requirements that came into force in 2021.

"Whilst some schemes have already decided to wind up as a result of our work, we will publish details of enforcement action taken, including penalties issued, when relevant legal process has concluded," TPR said.

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