The government has been urged to ensure that master trusts operate in the interests of scheme members and put in place rules to prevent conflicts of interest.
Member of Parliament for Stockton North Alex Cunningham called on the government to ensure there is a lender of last resort to save scheme members from a failing master trust and to introduce requirements for members of the trust to sit on its board.
A funder of last resort for master trusts would act as a final underpinning of the promises made to members of the master trust and would give them recourse to an established funding organisation committed to making good on scheme members’ dues.
“This new clause looks to ensure that in the event of a master trust failing, there is a funder of last resort – somebody in place that guarantees scheme members are not left out of pocket through no fault of their own,” Mr Cunningham said.
Government ministers have previously refused to back the suggestion as they believe it would place an unnecessary burden and that the new regulatory regime was sufficient to make sure that the risk of collapse was minimal.
Instead the government has consulted on the introduction of a panel of “white knights” who would step in to make sure that all members are protected in the event of a master trust collapse.
Mr Cunningham said these measures were not sufficient to ensure that members would get their full entitlements from a failing scheme.
“On this side of the chamber we’re not prepared to gamble with peoples’ pension savings. We believe that in order to protect scheme members we need the strongest possible regulatory environment in place.”
He urged the government to give complete assurance that no master trust will be in a situation that it has failed and has insufficient resources to meet costs.
Rules surrounding master trusts have come under increased scrutiny in recent years.
The government announced in the Spring Budget that it will update the tax regime for pension providers using the master trust model, which will bring the system in line with The Pensions Regulator’s strict rules for the sector.
Last year the Department for Work & Pensions introduced legislation that requires master trusts to meet capital adequacy and governance requirements.