The Pensions Regulator has said that it intends to be “more proactive and assertive” in its work, emphasising that “pensions are changing and the era of consolidation is here”.

Speaking at the JP Morgan Pensions and Savings Symposium, TPR chief executive, Nausicaa Delfas, said that the pensions industry is in a “moment of change”, heading towards fewer, larger pension schemes.

She stated: “We still have 5,000 private sector defined benefit (DB) pensions schemes holding £1.4trn worth of assets.

“And added to that are about 1,200 defined contribution (DC) pensions schemes – where the benefit is less certain.

“But that model of pension provision – a system of small schemes independent of one another – is becoming a relic.

“The pensions industry is undergoing radical change and is now on a journey towards, fewer, but larger, pension schemes.”

Indeed, Delfas pointed out that 90 per cent of trust-based members are within master trusts, with 82 per cent of members concentrated in the largest 5 schemes by assets under management.

This is alongside “radical shifts” in the DB pensions system, as Delfas pointed out that “we are now in a position where DB pension schemes are funded to their best levels in living memory – with around 80 per cent fully funded on a technical provisions’ basis.”

And this is a trend that is set to continue, as Delfas stressed that both DC and DB surveys have consistently shown that there is a strong correlation between the size of schemes and how well they are run.

“Second best isn’t good enough for savers. Our proactive engagement and market oversight will make sure that those schemes that remain in a reshaped market always deliver good outcomes for savers,” she continued.

“Our approach to poorly performing schemes will be to make sure they improve or move their savers to a better scheme.”

However, Delfas acknowledged that a consolidated, concentrated market brings different risks for savers and the economy as a whole, stressing that trustees will remain the “first line of defence for savers and for us as a regulator against these new threats”.

“We rely on them to take decisions in the best interests of others,” she stated. “But as we move towards fewer, larger schemes, the ask of trusteeship is changing.

“Increasingly we will need boards to be able to synthesise a broad range of data inputs and translate these into strategic decision-making.

“To understand commercial considerations offered to schemes with scale to move the market. And crucially, still represent faithfully the saver voice and savers’ interests in all that they do.

"Making good investment decisions and employing sophisticated investment governance practices remain essential. We need all trustee boards to be suitably skilled to invest in diversified assets that deliver good outcomes for savers.

"Not because we favour one asset class over another. But because all schemes should have the knowledge and experience to be able to consider investments in asset classes that might deliver better outcomes for savers.”

Whilst Delfas acknowledged that there are higher costs from increased due diligence and complex ongoing management, and challenges in valuations, she argued that the “rewards by making sound diverse investments are obvious”.

"A potential for higher risk-adjusted returns. New investment opportunities with the diversification benefits that provides. And even sources of inflation protection with access to inflation-linked cashflows,” she continued.

Given the shift to an environment of “supersized schemes” across both DB and DC, Delfas acknowledged that TPR’s approach will also need to shift, noting that because of the size of these schemes, the investments they make could not only affect retirement pots, but also the wider UK economy.

“So, we need to perform our role in the broader financial landscape, stress-testing different economic events and anticipating how to respond,” she continued.

And these efforts are already underway, as TPR recently announced plans to make a number of systemic changes to reflect changes in the pensions landscape.

Discussing this work, Delfas stated: “We need to meet the dynamic needs of the emerging pensions market and savers.

“We will become more market-focused, making sure we are even closer and better connected to developments in the pensions market and able to positively influence change as it unfolds.

“Though they are internal structural changes, I expect the industry to also see a gear-change in how we interact with you, and in our effectiveness over time.

“We will increase our use of data, digital and technology to identify where we need to focus our efforts. We will develop multi-disciplinary teams that can focus on the themes and the risks we are addressing.

“We will learn from every interaction we have and use that learning to update our risk analysis and our regulatory approaches.

“And we will develop quicker routes to enforcement to ensure that bad actors can’t threaten peoples’ pots or the UK market.”

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