Personal Pension  

Bridging the gap over master trusts

These standards come in the form of a controls report made by trustees. The desire is for master trust providers and trustees to be able to demonstrate that they can fulfil the requirements of TPR’s quality features. This is in response to a gap in the regulatory landscape for master trusts.

Called Assurance Reporting on Master Trusts – Master Trust Dupplement to ICAEW AAF 02/07 (TECH 07/14AAF), this technical standard becomes the latest part of TPR’s framework to regulate the governance and administration of occupational direct contribution trust-based schemes. It enables a master trust to voluntarily decide to have independent verification by an ICAEW-qualified reporting accountant that all but three of the 31 DC quality features have been achieved through evidencing around 100 to 200 control procedures relating to 38 specific key control objectives described in the master trust supplement (appendix 1). These are covered under five key headings: safety of assets and records, assessing value, assessment of investment options, people and governance. In addition, the report will outline key features of the control environment of the master trust, such as ownership, reporting lines and responsibilities, risk assessment and quality management. A TPR list of master trusts that have obtained independent AAF 02/07 assurance reporting will be publicly available.

The first reports are expected this year for a specific “point in time”, such as 31 October 2014, and cover the description and design of control procedures meeting the 38 control objectives. After that, reports will cover a period, such as year ending 31 October 2015, and review the operating effectiveness of the control procedures as well.

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These new good practice standards give more specific information to IFAs, accountants and other pension professionals dealing with smaller employers automatically enrolling their employees into pension schemes. Master trusts have been spoken about as an attractive option for these small employers and larger employers who want other alternatives. As a stand-alone occupational DC pension scheme, a master trust can manage investments of many different types of individual employers and their employees. Being set up by a trust deed it is not FCA-regulated – and there was concern that more guidance and standards on how a master trust should be run should be put in place.

Inspite of being a voluntary standard, the master trust AAF 02/07 assurance report will affect the pension industry. Some of the main implications are:

Safeguarding of member assets: A master trust should demonstrate to an employer or adviser what level of financial protection would be available to a member should the master trust fail. Trustees should also explain their reasons for selecting investments where compensation arrangements are not in place.

Investment decisions relating to the selection of investments need to be researched, authorised and monitored: The selection of unregulated investments will require formal recording by trustees with regular documented review. Any communication to members must clearly indicate investment choices that are not subject to regulation and what impact that can have on member financial protection.

All costs and charges are known: A complete and accurate list of the types of costs and charges incurred are clearly disclosed to employers when choosing a pension scheme for their employees, and members are given regular disclosures of information. This will enable employers to compare one master trust with another and set a standard for other arrangements.