Pensions Regulator  

Master trust rules put regulator under pressure

Master trust rules put regulator under pressure

The Pension Regulator has admitted new master trusts regulations which will see its remit increase significantly will demand a beefed up staff to deploy powers to intervene where schemes are at risk of failing. 

Talks between the Department for Work and Pension and TPR on stricter regulation of master trusts - multi-employer occupational pension schemes, where each employer has its own division within the arrangement - in March this year put the pensions under greater scrutiny.

Criteria of the bill released on 20 October announced auto-enrolment master trusts will have to meet new funding and governance standards, including making sure "persons involved in the scheme are fit and proper" and that "the scheme is financially sustainable". 

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Responding to a question about whether TPR was well-equipped and well-resourced enough to fill its new role, Andrew Warwick-Thompson, executive director at The Pensions Regulator, explained there would be a need for significant scaling up of the current resources.

"Where we are given significant additional responsibilities such as supervision of master trusts, there will be a need to increase our budget and headcount in order to maintain and enhance our effectiveness as a regulator.

"As we develop our operational approach we will clearly need to assess the resources needed in the different phases of schemes achieving authorisation and into supervision."

During the consultation period, a major concern of smaller master trusts had been that capital adequacy requirements would be set too high.

Before the bill’s release, Daniel Parkin, co-director of small master trust Wessex Pensions, told Financial Adviser it would be “hard” for small providers to comply with tough capital adequacy requirements. He said he hoped any new requirements would be “reasonable”.

But the bill provided little clarity on exactly how much master trusts would have to put aside.

All it said was that the master trust would have to have resources to cover “the costs of continuing to run the scheme for such period (which must be at least six months and no more than two years) as the regulator thinks appropriate for the scheme”.

Graham Peacock, managing director of Salvus Master Trust, said this seemed to set capital adequacy floor of six months. However, he said the exact amount, the way it was calculated, and in what form it would be held, was left to the discretion of The Pensions Regulator.

He said this significantly extended TPR’s remit, and questioned whether it was prepared for these new responsibilities.

“TPR are not resourced to be anything but a risk-based regulator. They’re not a police force, but this is what the bill expects them to be,” he said.

Marcus Fink, partner at financial institutions law firm Ashurst, said The Pensions Regulator appears to have a "wide discretion" on capital adequacy. 

He said he would expect regulations to be issued by the Secretary of State that set out an ideas of costs, such as around administration and the cost of transferring member benefits, both in bulk and individually on request.