Pensions  

Master trust consolidation set to speed up

Master trust consolidation set to speed up

The consolidation on master trusts is poised to increase after the government legislates on defined contribution (DC) bulk transfers, as schemes will be able to transfer their members’ pensions without consent.

With new master trust regulations poised to come into force in October next year, which will bring new capital adequacy rules to the sector, many smaller players will be looking to exit the market, according to pension experts.

Under the new rules, master trusts will have to hold enough capital to cover costs in the worst-case scenario, such as costs of transferring to another scheme or of winding up, without charging members. 

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Which means that there will be a window of seven months in which schemes will be looking to sell their business or merge with bigger players.

According to Tim Phillips, head of pension markets at Smart Pension, there are single employer trusts “deliberately waiting” for the new bulk transfer rules to come into force so they can transfer their members.

The draft legislation on this, published last month by the Department for Work & Pensions (DWP), scraps two previous requisites for bulk transfers without member consent.

The requirement for an actuarial certificate should be removed for ‘pure’ DC-DC transfers, where there are no potentially valuable guarantees or options to be assessed.

The scheme relationship condition, which currently requires transfers without consent to take place where there is some kind of underlying relationship between the employers using the schemes, will also be scrapped.

Graham Peacock, managing director of Salvus Master Trust, agreed that consolidation will get a boost with the new rules.

He said: “We are seeing a vast number of employers looking at their very expensive pension schemes, and saying that they can save a lot of money, increase their governance standards, and get rid of their trustee board by the secondary market, moving into one of the leading master trusts.”

The schemes that have consolidated have done so through “the consent route, but that means getting consent from every single member,” Mr Peacock added.

He said: “It is a torturous process, when an employer just wants to say - to a non-engaged work force - I'm going to move my pension scheme from one master trust to another.

“Surely that employer should be able to do that in the best interest of their staff?”

According to Mr Phillips, besides making consolidation easier, the new bulk transfer rules will also be better for members’ interests.

The draft legislation is proposing that when pensions are transferred without consent, the members’ protections under the charge cap will transfer into the new scheme.

Mr Peacock argued that this is the most important factor of the new rules.

He said: “Nobody should be trying to do this and put the member in a worse position that they were before."

The new master trust regulations are expected to be published on 30 November.

maria.espadinha@ft.com