TPR drive must not squeeze out small schemes

TPR’s consolidation drive mustn’t squeeze out smaller schemes. For nearly 15 years, a persistent question has lingered in the pensions sector: how do we get people saving more? Auto-enrolment has been a significant step, encouraging over 11 million people to save via PAYE, yet the conversation often overlooks the infrastructure that supports these savers. The regulator’s current push to consolidate smaller pension schemes has sparked debate about the future of the industry, particularly regarding the impact on smaller, often more agile, arrangements.

The drive to reduce the number of schemes in the market is not new. Administrators are under pressure to streamline operations and cut costs, leading to a natural tendency to merge smaller entities. However, the regulator’s active involvement has intensified this trend. The goal is ostensibly to reduce complexity for savers, but the process can be fraught with administrative hurdles that smaller schemes struggle to handle. While larger providers have the resources to absorb the costs of regulatory changes, smaller administrators may find these requirements prohibitive, leading to closures rather than survival.

Smaller schemes often offer niche benefits or specific investment strategies that larger, consolidated schemes cannot match. When these are lost, the variety of choice for savers diminishes. There is a risk that the drive for efficiency could result in a homogenized market where the specific needs of different groups of savers are overlooked. The process of consolidation itself can be disruptive for members, who may face changes in administration and potentially higher fees during the transition.

From a practical standpoint, this consolidation threatens to create a two-tier system where only the largest schemes survive. This reduces the diversity of the retirement setting and limits the ability of smaller, specialized providers to innovate. The regulator’s focus on cost-saving and standardization is understandable, but it must be balanced against the need to preserve choice and competition within the market.

When smaller schemes are forced to merge or close, the direct effect on members is often just administrative inconvenience. However, the broader impact on the sector is more significant. It reduces the number of active administrators, which can lead to higher barriers to entry for new players. This stifles innovation and leaves savers with fewer options. The long-term health of the pensions market depends on a diverse ecosystem, not just a few dominant players.

The consolidation drive is a double-edged sword. On one hand, it addresses legitimate concerns about the complexity of the pensions setting. On the other, it risks squeezing out the smaller players that often provide flexibility and specialized services. The regulator and the industry must ensure that the drive does not come at the expense of the very people it aims to help. The focus should be on simplifying the experience for savers without destroying the diversity that makes the market work.