Michael Johnson: The Pension Schemes Bill will reconfigure the workplace DC pensions
“Megatrust” providers should be regulated as giants, trustees required to meet higher standards and contract-based workplace schemes ended, a Social Market Foundation paper says.
The paper – Trustee as Sovereign, published yesterday (4 March) – and authored by Michael Johnson, says the Pension Schemes Bill reforms will create as few as ten dominant megatrust providers by the mid-2030s.
Johnson argued funds of this scale will become "systemically important" – and added that the current regulatory regime will no longer be fit for purpose.
He calls for The Pensions Regulator (TPR) to become the single regulator of all workplace defined contribution (DC) pensions – also proposing that contract-based workplace default schemes should be phased out entirely, making them ineligible for auto-enrolment contributions from 2030.
The paper also calls for a major upgrade in trustee capability. Johnson says that, as schemes scale up, governance standards should match those expected of systemically important financial institutions.
And he proposes a single national accreditation framework for trustees, with clear conduct standards and defined technical competencies.
Johnson said: "The Pensions Schemes Bill 2025 is welcomed. It is ambitious and far-reaching, intent upon reconfiguring the workplace DC pensions market to increase retirement incomes for millions of scheme members.
"It is hoped that implementation of my paper's proposals, to enhance the allied governance and regulatory frameworks, will play a part in achieving this, while also providing a steer towards what consumers really want: a single DC pension pot holding both personal and workplace-derived contributions. Simplicity to the fore."
SMF director Theo Bertram added: "This is an important provocation for the government. Savers do not care whether their pension is ‘contract' or ‘trust' based — they care about security, value and retirement income.
"Michael's argument is that the regulatory system should be reshaped to achieve those goals. Meanwhile, workplace pension megafunds are about to become some of the most powerful financial institutions in Britain, and Michael makes a clear case that if we end up with a small set of pension giants, then they must be regulated as giants."
In his wide-ranging paper, Johnson also proposes further regulatory changes relating to value-for-money assessments, alternative approaches to the Bill's retirement income default, surplus extraction from defined benefit schemes and enhanced rule-making powers for TPR.
He also calls for the creation of an annuity clearing house and further reform of the Local Government Pension Scheme. The paper additionally warns against mandatory asset allocation in pursuit of the government's productive finance agenda.
