The Pensions Regulator (TPR) has published updated guidance for defined contribution (DC) master trusts on capital reserve.
In a blog published today (20 March), the regulator's director of DC and master trust supervision Kim Goodall-Brown said its guidance could unlock "millions of pounds", and that this capital could be used for investment in innovation as the DC master trust market continues to grow in scale.
The regulator noted master trust authorisation, introduced in the Pension Schemes Act 2017, led to consolidation of the market from around 100 schemes to a group of around 30 today holding more than £200bn in assets for over 30 million DC memberships.
TPR said with this "maturing" landscape, it has reviewed its approach to ensure regulation continues to protect members while reducing "unnecessary burdens" and supporting economic growth. The watchdog said this would enable some DC master trusts to "unlock" investment for innovation by "safely" reducing the level of cash reserves they hold and instead meet capital requirements with a different mix of assets.
TPR noted that master trust reserves nearly doubled from the first authorisations in 2019 to 2024, increasing by £725m to nearly £1.5bn. It said cash reserves had also increased to around £200m in 2024, with some schemes holding larger reserves than the original policy intended.
The regulator stated for transparency and to enable master trusts to understand how they compare, it will publish data on reserving practices on an annual basis, beginning in 2027.
As the market moves towards DC megafunds, as set out in the Pension Schemes Bill, which reached the report stage in the House of Lords earlier this week (16 March), the regulator emphasised the importance of ensuring the regulatory framework evolves to enable innovation and provide security and value.
Goodall-Brown said: "Over the last seven years, we have learnt much about how the market is operating. As the pensions landscape evolves and master trusts continue to grow, it is important that we continue to evolve our approach.
"We have been clear that we want master trusts to be well run and well governed with trustees and scheme decision makers empowered to make the right decisions for them. At the same time, we want to strip back unnecessary regulatory burden so that schemes can free up capital for productive use and focus on delivering the best possible outcomes for members.
"We will work with the Department for Work and Pensions to identify potential alternative requirements and opportunities to update the legislation. Any proposed future changes would require public consultation to further gather industry input. Good regulation evolves and flexes as markets change. The master trust market of today is very different to 2018 and will be very different again in 2035."
