The Pensions Regulator (TPR) has announced that it will extend its oversight to include professional trustee firms as part of its move to a more prudential style of regulation.

TPR chief executive, Nausicaa Delfas, confirmed the news at the Trades Union Congress Pensions Conference, explaining that the initiative is expected to help identify and mitigate any risks to pension savers.

Delfas announced that the regulator will begin a pilot period engaging with professional trustee firms this summer, before extending its approach to cover all remaining professional trustee firms by the end of the year, as it tests and refines its new framework for education and engagement.

She said: “In a world of scale, the nature of trusteeship is changing. No longer is it a pensions system of small, independent pension schemes. But a landscape increasingly dominated by 'mega schemes' and professional trustees.

"This brings new risks and opportunities for savers and requires us as a regulator to shift our approach, and to make sure that in all of this change – trustees remain squarely focused on acting in members’ best interests.

"The professional trustee industry has experienced significant growth over the last few years, with more than half of UK schemes using a professional or sole trustee.

“Between them, just 10 firms govern more than a trillion pounds of savers’ retirement income.

“As part of our new risk-based and outcome-focused approach to regulation, we are extending our engagement with these firms to identify and mitigate any risks to pension savers."

According to Delfas, this extended oversight will enable TPR to assess risks in greater detail, allowing it to make clear its expectations and work with the professional trustee industry to identify appropriate mitigations that can be implemented.

However, the regulator confirmed that, where it does identify material risks, and firms do not meet its expectations, it will also consider how it might make use of its existing powers to mitigate those risks.

As part of this work, TPR will also explore methods of proportionate and targeted data collection and seek to foster a culture of open regulatory dialogue.

The latest announcement builds on previous work by TPR in this area, as the regulator announced last year that it would be engaging with the biggest trustee firms to better understand their businesses, the risks and opportunities that arise and any conflict issues.

Delfas shared early insights from this work, revealing that there is a variety of business models in the market and a "significant" expansion in the number of professional trustees, all of which have brought different opportunities to savers.

In addition to this, TPR found that some firms use a wider network of employed staff including governance specialists to support trustees in managing a scheme, which can bring opportunities for specific expertise to be drawn on by professional trustees.

However, the regulator warned that this could also bring risks around accountability and quality assurance if there is sub-delegation.

And this was not the only area of concern highlighted through TPR's engagement, with the extended oversight therefore set to focus particularly on several areas where TPR thinks risks to savers’ outcomes could arise.

This includes professional trustees' relationships with employers, profit and remuneration models, in-house advisers, and the role of sole trusteeship.

"This engagement has confirmed the need to not only check professional trustee firms provide capable trustees – which undoubtedly they can do," Delfas stated.

"But also, to make sure they are operating in a way that is consistent with the needs of savers."

In particular, Delfas said that the regulator will "interrogate" professional trustee firms’ profit and remuneration models, in order to understand if the commercial imperatives of firms could affect trustee’s decision making, and whether there is any risk that services could be compromised in a bid to reduce costs.

In addition to this, she said that the regulator will explore the risks associated with the idea that professional trustee firms can act as a "one-stop shop", such as whether there is a reluctance from professional trustees to properly scrutinise advice from, or to pursue errors by, in-house advisers.

"Most importantly of all, we want to know who the scheme decision-maker is – not the firm but the person - that these people have the right level of skills and experience and that they are guided entirely by their duties to act in the members’ best interests," she stated.

In addition to its extended oversight, Delfas confirmed that TPR is undertaking work to foster the right traits and behaviours in trustees.

In particular, she confirmed that TPR will share further guidance this spring to help trustees understand the array of new models of service provision that are hitting the market, covering fiduciary management, governance services, and for DB schemes, end-game solutions.

She also highlighted TPR's plans to share "compelling" regulatory communications and supervisory engagements, in order to help trustees to understand what to prioritise and our clear expectations.

Alongside this, she confirmed that TPR will be looking to develop a new strategy over the course of the year seeking to raise standards of trusteeship.

The work is also building on TPR's experience establishing relationships with eight of the largest commercial and non-commercial administrators in the market.

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