Smaller master trusts have welcomed stricter regulation of the auto-enrolment sector, after widespread criticism the industry and MPs - but warned against over zealous changes to capital adequacy requirements.
Master trusts - pension providers that manage centralised workplace pension funds for several companies at the same time - which hold lower amounts of retirement savings have come under particular fire, amid accusations of poor governance and investment management.
Speaking to FTAdviser, some of these smaller schemes welcomed tighter regulation of the sector.
Wessex Pensions co-director Daniel Parkin said his scheme – which mainly deals with micro-businesses and so far has signed up fewer than 50 employers and has assets under management under £1 million – is ready to meet rigorous regulatory standards.
“I have got no issue at all with having a higher level of regulation. We’d view it as a positive,” he said.
He said he was confident if new regulations highlighted shortfalls in his scheme, he would raise the level to meet them.
Michael Clarke, a trustee of both Wessex Pensions and bigger player Salvus Master Trust, also said he would welcome tighter regulation, provided it was in the interest of members.
“It’s all about members,” he said. “I do not want master trusts to be used as another example of how pension funds are not looking after their members’ money.”
Ring-fencing members’ money and developing exit solutions in the case of a scheme’s failure – both of which are expected to be included in a proposed new pensions bill – would be straightforward for well-run funds, he said.
However, he warned draconian capital adequacy measures could have the unintended effect of driving quality out of the market and reducing competition.
“What I wouldn’t want to see is quality being inadvertently driven out of the market,” he said.
Mr Parkin echoed these fears, acknowledging would be “hard” for the small providers to comply tough capital adequacy requirements. He said he hoped any new requirements would be “reasonable”.
Graeme Peacock, managing director of £50m master trust Salvus, told FTAdviser the Department of Work and Pensions was looking at four areas: capital adequacy; ring-fencing members’ funds in the case of a business collapse; member compensation if the scheme itself fails; and a master trust’s exit solutions.
He said the DWP was “completely off the mark” on these.
“The government should simply make the master trust assurance framework (Maf) mandatory. That would solve most problems without tinkering with the legislation,” he said. Currently Salvus is one of only 13 of the 73 master trusts known to the regulator have Maf accreditation.
Mr Peacock added The Pensions Regulator should be given greater powers to “ensure the sustainability and viability of all master trusts, not just the small players.” He said unviability was not just a problem among smaller funds.
Critics of the current light-touch regulation point to sub-standard smaller players, which can set up a master trust without jumping through rigorous regulatory hoops.
Pensions expert and director of Pensions PlayPen Henry Tapper described many small providers as “well-meaning but undercapitalised”, while Nigel Sycamore, a business adviser and director of Clear Workplace, said: “Since auto-enrolment began, master trusts have been springing up in an opportunistic way, without adequate capital.”
james.fernyhough@ft.com
