The Pensions Regulator (TPR) is broadly well-run and well-regarded, a review from the Department for Work and Pensions has found, although there are some areas of improvement, particularly around strategic and operational future challenges.

The Department for Work and Pensions (DWP) previously confirmed that it had appointed Mary Starks to lead on its review of TPR, which looked to examine how TPR is performing its role and where it can improve, providing greater efficiency and value to taxpayers.

In her review, Starks acknowledged that TPR staff engagement has been improving in recent years, with TPR's research revealing that the overall employee engagement score was 72 per cent for 2022, up from 62 per cent in 2020.

Most stakeholders were also favourable towards TPR, as Stark confirmed that while there were some specific concerns, such as a lack of resourcing, stakeholders generally praised TPR for performing its role well and recognised that the job is often a difficult one given its challenging remit, expanding powers and sheer volume of recent industry developments.

Despite this positive backdrop, Stark found that there were some areas for improvement, outlining a total of 17 recommendations for the watchdog.

As part of this, Stark recommended that, following the publication and implementation of the final Defined Benefit (DB) Funding Regulations, TPR should work jointly with the Pension Protection Fund (PPF) to manage DB pension schemes unlikely to make it to buyout, in a way that maximises the benefit to savers.

Stark also encouraged TPR to work with HM Treasury and the DWP to determine how best to interface with the Financial Policy Committee on financial stability, including consideration of whether TPR should have a formal objective in respect of financial stability, as well as the powers, resourcing and information needed to fulfil such a role effectively.

This follows on from previous recommendations that TPR should have the remit to take into account financial stability considerations, after the 2022 liability-driven investment (LDI) crisis exposed some regulatory fragmentation.

This was not the only potential change in remit highlighted in the review, as Stark also encouraged the DWP to work with TPR to understand the costs and benefits of extending TPR’s remit to cover pension administrators and introduce formal standards and authorisation for professional trustees.

In addition to this, Stark recommended that TPR factor into the annual review of its corporate strategy its role in monitoring asset allocations and the likelihood of delivering good long-term outcomes for savers.

She also suggested that the regulator monitor the evolution of the pensions supply chain in its strategy work and flag any concerns about gaps in regulatory oversight to DWP.

However, Stark did not recommend a change to the institutional framework at this time, suggesting that it is "far from clear that the benefits of shifting to a single regulator outweigh the costs and risks of distraction".

"Experience suggests that merging public bodies can be more difficult than first apparent, particularly where the two regimes have different legal bases," she stated.

Although Stark acknowledged that some stakeholders had raised concerns in principle, related to risks of issues falling between gaps, duplication of effort for regulated entities, risk of regulatory arbitrage, and confusion for customers, the review found that most felt these were fairly well managed.

Stakeholders also raised significant questions around the future of DC pensions policy that go beyond the issue of having two regulators, including regarding consolidation of weaker schemes, and the differences between contract-based and trust-based pension rules.

However, Stark clarified that while these are important questions, they are beyond the scope of the review.

Given this, she recommended that TPR remains a standalone entity for the time being, albeit with continued strong lines of communication with the FCA, His Majesty’s Revenue & Customs (HMRC) and other public bodies.

Despite this, Stark suggested that DWP could consider delegating day-to-day regulatory powers to TPR, encouraging DWP and TPR to jointly produce an options paper to include analysis of what areas of rulemaking could be delegated, and any legislative change necessary to enable this.

More broadly, Stark recommended that TPR review its enforcement approach, resourcing, and communication around enforcement outcomes.

In relation to auto-enrolment in particular, Stark suggested that TPR consider whether there are cost-effective options to increase incentives to comply among smaller and financially weaker employers, and to secure contributions early from employers in financial difficulty.

The review also considered TPR's efficiency, in light of the government target to identify efficiency savings of more than five per cent where possible.

According to the review, TPR planned to make a £3.2m saving by realising efficiencies from the work it had done investing heavily in the systems estate, allowing TPR to automate and reduce contractors and resource in the business.

In addition to this, TPR said that it expects to achieve significant efficiency savings (23 per cent) through reducing auto-enrolment running costs.

The bulk of this saving comes from the in-sourcing of AE services previously provided by Capita, although Stark admitted that there may be further efficiency savings available from revisiting the AE operating model now that AE has been fully implemented.

Stark stated: "Based on my conversations with TPR and the evidence I have seen, I have no reason to doubt that TPR will be able to deliver the savings against baseline budget that it committed to in the spending review.

"However, I also recognise that new demands are emerging (for example in relation to master trusts, CDCs and financial stability).

"TPR may have some capacity to fund new activities from underspend, but it would be preferable to ensure forecasts are accurate and to revisit budgets as and when TPR’s remit expands."

Looking ahead, Stark also suggested that DWP, in consultation with HMT, should undertake an analysis of how the regulator could be fully funded by the pensions sector to inform a recommendation to ministers.

Digitisation was another key theme throughout the review, as Stark encouraged TPR to develop a clear strategy for digital transformation in terms of both invest-to-save and invest-to-improve measures.

Commenting in the foreword of the report, Starks stated: "I would like to thank everyone who has contributed to this review. It has benefited from constructive engagement from TPR itself, from officials in the DWP, and from stakeholders in the industry, all of whom responded to my questions willingly and openly.

"TPR has grown significantly in recent years, reflecting the addition of new responsibilities.

"With further remit expansion in the pipeline, there is a risk that TPR grows inexorably unless it can bring about a step-change in its ways of working – which it plans to do through digital transformation.

"TPR’s main challenge is pursuing its digital agenda in a way that meets its strategic ambitions yet provides enduring value for money.

"There are big shifts underway in the UK pensions sector, as it transitions from a defined benefit to defined contribution basis, looks to increase contributions, and starts to explore new models such as superfunds and collective defined contribution schemes.

"The key recommendations in this report relate to addressing future challenges, both strategically and operationally."

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