Almost nine in 10 defined contribution (DC) savers are in schemes which invest in at least one productive asset class, The Pensions Regulator’s (TPR) latest research shows.
TPR’s survey data shows that 45% of defined benefit (DB) schemes, 57% of large DC schemes, and 72% of DC master trusts hold some productive assets, such as infrastructure, private equity or renewables.
The research also shows that large-scale DB and DC schemes are more aware and engaged with their governance compared with smaller schemes.
This may put them in a stronger position to make informed decisions around diversified investments, cyber security and environmental, social and governance.
The findings also suggest smaller schemes are at risk of not performing as well against TPR’s expectations on investment governance and governance more broadly.
Nausicaa Delfas, TPR’s Chief Executive, said: "We believe sound investment in diverse assets could improve outcomes for savers and generate growth for the UK economy. The two do not have to be in conflict.
"We want to help all schemes to be able to consider a full range of investment options, either through ensuring strong governance or by encouraging them to consolidate."
The surveys show that while many larger DC schemes hold productive assets, such as infrastructure, private equity or renewables, a sizeable proportion of small (57%) and micro schemes (70%) did not know if their scheme held assets in these classes. This lack of understanding could indicate poor governance standards.
That is why TPR is continues to tackle poor governance in small schemes by:
- probing how many schemes meet their legal duty to carry out a detailed Value for Members assessment – this has seen nearly one in five schemes engaged with concluding they do not offer value and winding up and fines issued for non-compliance
- developing a Value for Money framework in partnership with Department for Work and Pensions and the Financial Conduct Authority
- introducing a more proactive supervisory approach to improve the quality of trusteeship, with a greater emphasis on providing value
Investment diversification
TPR has outlined key areas where diversification in pension scheme assets to manage risk is important:
- diversifying assets helps mitigate risk by ensuring a scheme is not overly reliant on the performance of a single asset class or investment
- by investing in a variety of assets, schemes can achieve more stable and predictable returns over time
- a portfolio that includes growth assets could lead to higher returns while still balanced by more stable, lower-risk investments
TPR has called on trustees to work with investment advisers to develop a well-diversified investment strategy that aligns with the scheme’s risk tolerance and long-term goals.
Notes for editors
- TPR published its Defined contribution trust-based pension schemes research and Defined benefit trust-based pension scheme research on Tuesday 25 March. The DC trust-based pension schemes and DB trust-based pension scheme research comprised 215 and 200 quantitative telephone interviews of all regulated DB and DC schemes respectively, with fieldwork being undertaken in September and October 2024. All respondents were asked whether they held assets, in the UK or overseas, in infrastructure, private equity, venture capital and renewables, while respondents from DC schemes were also asked if they invested in a long-term asset fund.
- 'Smaller DC pension schemes' refers to those schemes with fewer than 100 members encompassing micro and small schemes.
- 87% of scheme members are in schemes that invests in productive finance. The proportion is calculated by applying a weight, based on scheme membership, to the overall scheme population.
- Findings on holdings of productive asset classes (either UK or overseas) are in table 3.3.1 of the DB report and 3.2.1 of the DC report. Findings on UK holdings are in table 3.3.2 for DB and 3.2.2 for DC. For findings on cyber security see section 3.1 and for environmental, social and governance findings see section 3.4 of the DC report.
- Official statistics from TPR show master trusts provide for most trust-based DC members, holding 28 million memberships – 91% of non-micro DC and hybrid schemes. It also shows the number of non-micro DC schemes decreased 15% in 2024 to 920 – under 1,000 for the first time. The drop in the number of schemes was primarily driven by those with fewer than 5,000 memberships. The total number of micro schemes (under 12 members) decreased by 25% from 32,880 in 2015 to 24,680 in 2024. Schemes with 12 to 99 memberships, declined from 2,260 in 2011 to 430 schemes in 2024, a decrease of 81%.
- Driving consolidation in savers' interests is at the heart of TPR’s three-year Corporate Plan released last year with a regulatory initiative launched to challenge small schemes on the value for money they offer savers. TPR has said it believes the shift towards fewer, larger pension schemes can be beneficial through increased efficiency and scale and that sound investment in diverse assets could improve outcomes for savers and generate growth for the UK economy. To regulate for this changed market, TPR is adapting its approach to focus on prudential-style regulation, addressing risks at both the individual scheme level and the broader financial ecosystem.
- In 2023, TPR launched a regulatory initiative to check savers in DC schemes are benefiting from rules requiring trustees to assess whether they are delivering value. This has been helping drive schemes to consolidate, with around 17% of DC schemes TPR engaged with reporting that, having concluded their schemes do not offer good value, they had opted to wind up. Since the start of the initiative, TPR has issued more than £33,000 in penalties for breaches of the regulations. More penalties are expected through this ongoing initiative.
- In January 2024, TPR published guidance to help trustees consider better outcomes for savers by investing in private market assets. The private markets guidance makes clear, with the right advice and effective governance, private market assets can play a valuable part in a diversified portfolio that aims to improve and protect saver benefits.
- TPR is the regulator of work-based pension schemes in the UK. Our statutory objectives are to:
- protect members' benefits
- reduce the risk of calls on the Pension Protection Fund
- promote, and improve understanding of, the good administration of work-based pension schemes
- maximise employer compliance with automatic enrolment duties
- minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of the regulator’s functions under Part 3 of the Pensions Act 2004 only)
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