Addressing the House of Commons, economic secretary to the Treasury Harriett Baldwin said the government is aware of some of the issues presented by master trusts and would take action.
Answering a question from shadow Treasury minister Rob Marris, Ms Baldwin said: “I can let him into a little secret on that: the government will bring in legislation on master trusts and on the points he raised as soon as practically possible.
“We had considered bringing it in as part of this piece of legislation, but we felt that since the bill had gone through the House of Lords it would be very late on in the legislative process to introduce something as extensive as that.
“That was my judgment, and I hope that he will support me on that. However, we aspire to find very soon the first appropriate vehicle that could be scrutinised by both chambers to bring in the regulations relating to master trusts and auto-enrolment.”
Last month the managing director of Goddard Perry said he expected only half the existing master trusts to survive because they would struggle to generate sufficient funds under management.
Steve Webb, former pensions minister and director of policy at Royal London, said when auto-enrolment was created it was not expected there would be a large number of master trusts - hence the decision to create Nest.
He said: “I think there is a concern about some of the newer master trusts.
“In the early days of automatic enrolment this wasn’t much of an issue. The big employers were using their existing schemes or schemes run by big household name insurers or mass scale master trusts.
“But as the market has expanded, much smaller master trusts have come in and may struggle to operate at the necessary scale.
“There are also very limited checks on who is in charge and whether they have any commercial interests which might conflict with their duty to put the member first.
“This certainly feels like an area where the regulator needs to move fast to investigate the trusts that have already been set up to make sure that they are being properly run and look at whether the ‘gateway’ into setting up a master trust needs to be tightened.”
In October The Pensions Regulator’s chief executive Lesley Titcombe said it was “frankly disappointing” that so few master trusts had obtained assurance and expressed concern about the sustainability of some newer master trusts.
The Pensions Institute has also warned of a large number of exits from the small and medium-sized master-trust market because entry-level barriers are currently low, capital requirements are weak and member protection in the event of a provider’s failure default is unclear.
Adviser View
Ben Sear, managing partner of Cambridgeshire-based Martin Redman Partners, said: “The longevity of any provider offering any service has to be a key consideration because what you don’t want is putting your client into a service that may wrap up in five or 10 years.
“I do have a slight concern with how many of these new providers are arriving. It was the same in the Sipp market and we are seeing consolidation there.”
