UK – The chairman of the UK Pensions Regulator (TPR) has backed the use of large-scale, trust-based pension funds for auto-enrolment over self-administered arrangements, pointing to the cost benefits of larger funds.

Michael O'Higgins' comments came after pensions minister Steve Webb repeatedly argued that only good-value schemes should be certified as ready for auto-enrolment.

In reference to industry concerns over his 'pot follows member' policy – criticised by some as putting members at risk of being enrolled into a lower-quality fund once they switch employers – Webb told the National Association of Pension Funds (NAPF) Annual Conference in October: "If people are worried about transferring a £2,000 (€2,500) pension pot into a lousy auto-enrolment scheme, why the heck are we allowing firms to auto-enrol their entire workforce into a lousy auto-enrolment scheme?"

Speaking at the NAPF Trustee conference in London earlier this week, O'Higgins noted the enormous amount of new pension savers that would come about as a result of soft compulsion.

"The best outcome for these individuals is to be auto-enrolled into high-quality, value-for-money schemes, benefiting from scale and good governance," he said, stressing that these principles were already "at the centre" of TPR's regulatory approach.

"More small schemes are not the answer. I want to say explicitly that workers should not be automatically enrolled into smaller schemes that do not benefit from economies of scale, tend to be poorly run and do not deliver value for money in the charges they make to members."

O'Higgins added that he did not want to see auto-enrolment into legacy pension funds that still maintained unsuitable fee structures.

He added that any option that required "a higher level of financial literacy" – such as Self-Administered Personal Pensions – should also not be considered by employers, as these would require any employee to act as his or her own trustee.

Joanne Segars, chief executive of the NAPF, welcomed the chairman's comments.

"We share the regulator's concerns about scale and value for money, and we echo their desire to see all workers auto-enrolled into a high-quality pension," she said.

"There is no point in bringing people into a bad pension."

The NAPF has long argued in favour of the creation of a limited number of Super Trusts to bring about scale that would benefit members.

The suggestion was seemingly taken on board by the Department of Work & Pensions.

In the long-awaited 'Reinvigorating workplace pensions' policy paper released last month, it said it was "keen to examine" if a smaller number of funds would provide greater value for money.

However, TPR's chief executive previously seemed to rule out any forced mergers of pension funds, saying it was an approach "much more interventionist" than it usually employed.

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