Pensions Regulator warns of ‘unacceptable risk’

The Pensions Regulator (TPR) has issued a strong warning of ‘an unacceptable risk to consumer protection’ of new ‘micro’ pension schemes.

The regulator has made tackling the ‘sub-scale’ schemes a top priority in its three year corporate plan.

Automatic enrolment

The small schemes have been created under the government’s automatic enrolment scheme for workers and the fear is that some of them are simply too small to survive which would mean members losing all their savings.

The warning was issued after total membership of defined contribution schemes overtook the more traditional defined benefit schemes for the first time.


A defined benefit scheme – better known as a ‘final salary’ or ‘career average’ pension –  promises a specific amount of money which doesn’t depend on investments but is calculated from your salary and your length of employment with the company.

A defined contribution scheme depends on money invested by you and your employer in a pension provider and the value of your pension will go up or down depending on how those investments perform.

Unlike the defined benefit scheme, there is no guaranteed payout and if the scheme’s investments fail the saver will lose his or her money.

Master trusts

Master trusts are multi-employer pension schemes, favoured by small firms because they band together with other companies to create a larger joint scheme.

TPR has previously expressed concern over the competency of the people running some of the smaller trusts.

Executive director Andrew Warwick-Thompson said at the start of the year: “There is a risk of these schemes falling over.  There is a risk that members might lose their money.”


He added that some of the small pension providers ‘may not be run by competent people’.  Even where directors are qualified, providers do not always make it clear where the savings are invested, or who owns the schemes.

“We would like to have a strategy in place where, if there was a mass failure of some of these small schemes, we’re all ready to move in and we have a plan of action in place,” he said.


Commenting on the regulator’s proposed course of action, Mr Warwick-Thompson said: “Our concerns are rising about the fragmentation of DC provision and the persistence of a tail of sub-scale schemes. In our opinion, these pose an unacceptable risk to consumer protection. The consolidation trend we have observed and welcomed in previous years has slowed.

“We strongly believe that it is unacceptable to have two classes of DC pension saver – those that benefit from the premium of scale and good governance and administration, and those that do not. Our approach to resolving this issue will be threefold.

Regulatory action

“We will launch details of the implementation phase of our 21st Century Trustee initiative later this year, with a clear objective to raise standards of trusteeship and take regulatory action against those trustees who persist in failing to meet the required level of competence.

“Through the introduction and implementation of the new authorisation and supervision regime for master trusts we will seek to create a secure, scalable and value for money cornerstone of the multi-employer DC savings market.”

Principal risks

There are a number of other principal risks identified in the report including poor standards of stewardship, disorderly scheme failures, poor data integrity, poor security and uncertain investment decisions.