UK – Pension funds should avoid shifting too heavily into cash and similar assets as members approach retirement, the UK Pensions Regulator's chairman has said, encouraging funds to retain a "reasonable" exposure to growth assets.

Speaking at a conference organised by the National Association of Pension Funds (NPAF), Michael O'Higgins also responded to calls for a single regulator of workplace pensions, arguing it would be unwise to make changes at the present time.

O'Higgins, speaking instead of outgoing Pensions Regulator (TPR) chief executive Bill Galvin, said the notion that funds should shift into cash and similar investments as members approached retirement reflected a view of investment that was unaware of demographic changes.

"The idea that you move into near-cash when people approach retirement seems to me to be based upon the idea that people survive five years in retirement," he said.

"If people have retirements of 20, 25 and 30 years' expectancy, it seems to me you might want to go to near-cash for the first five years. But you want to keep a reasonable amount of growth assets for the remainder of that."

The chairman also warned pension trustees not to work on the assumption that an incoming statutory objective that would require the regulator to explicitly take account of a sponsor's solvency was already in effect.

"The new objective will not become law until the legislation has passed through parliament, so trustees should continue with their valuations bearing in mind our current guidance," he said.

He added that the rejection of liability smoothing reflected the regulator's view that the approach "risked masking the underlying economic reality", which would not help any of the parties involved.

He noted that the current approach that allowed for smoothing of recovery payments was preferential over the smoothing of scheme valuations.

Addressing calls – most recently by the parliamentary select committee on work and pensions – that there should be a single regulator for workplace pensions, he said TPR's regulation of schemes could be transferred to contract-based funds, as the different regulators applied a principles-based approach.

Asked about the introduction of a single regulator, he said: "My preference would be to concentrate on ensuring the regulators use the principles rather than moving the deckchairs just at the moment."

O'Higgins also commented on the NAPF's criticism of TPR's approach to DC regulation, which the organisation had branded as too prescriptive, saying the regulator would reflect on the feedback as it prepared its response.

However, he stood by the idea of stricter regulation for master trusts, saying its approach was "reasonable" given the number of members who would be enrolled into such schemes, and the risks posed by such funds.

"[There are] risks such as low barriers to entry for new providers, with business models predicated on obtaining scale," he said.

"[But] what happens to the others that don't obtain scale? And how do you make sure the members are protected when such things fold or are transferred into other schemes?"

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