Existing master trusts could have to pay up to £67,000 in fees next year to The Pensions Regulator to register.
The £67,000 demand was part of draft regulations published today (30 November) by the Department for Work & Pensions (DWP).
New entrants in the market, however, will only have to pay £24,000, which has raised some criticism from providers.
According to Darren Philp, director of policy at The People’s Pension, the "same rigour and assessment needs to be in place on existing and new master trusts."
He said: "The regulation states that the principle for charging is cost-recovery.
"If this is the case then why do we need two different caps, since there is nothing to stop the regulator charging a new entrant the actual costs of authorisation?"
According to Mr Philp, initial supervisory costs of new master trusts could also be greater, "as they should be required to demonstrate to the regulator that they are implementing systems that actually work."
From a political perspective, setting a lower bar for new entrants might send the wrong message, Mr Philp argued, since the new rules were driven "by the entrance of low quality, under-capitalised and potentially fraudulent schemes".
Graham Peacock, managing director of Salvus Master Trust, agreed with this position.
He said: "The logic should be the other way around, because The Pensions Regulator has engaged with every major master trust in the marketplace. They know who we are, they know where we are, they know everything about us.
"We are the existing ones with a significant track record. I'm not sure that there should be a differential at all [in fees between new and existing schemes]."
Claire Altman, head of finance at Smart Pension, also shared this position.
She said: "We are not convinced that it is right or fair to impose a considerably lower authorisation fee for new schemes compared to existing ones."
In the consultation document, the DWP said there are two different fees because the "the work involved in processing an existing master trust application will be substantially higher than processing a new application".
The DWP paper stated: "The reasoning for this includes, for example, the regulator's intention to have higher engagement with existing master trust schemes, reflecting market risk, known issues and the greater likelihood of additional information being required during the processing window."
A spokesperson at the DWP said that despite the indicated fees, The Pensions Regulator will have discretion to decide on a case by case the charge to be applied, which cannot be higher than the referred values in the document.
Kate Smith, head of pensions at Aegon, believes that the fee to be charged to existing master trusts will speed up an already expected consolidation in this part of the pensions market.
She said: "Only the financially stronger schemes are likely to want to continue to participate in this market while weaker master trusts will look to find a buyer."
Nathan Long, senior pension analyst at Hargreaves Lansdown, shared this opinion.
He said: "We know there are businesses that will not be looking to play a long-term role in the master trust market.
"The news that they face an authorisation fee of up to £67,000 in addition to needing to have their business plans ratified by the regulator could cause those that were not already looking for the exit to do so.
"The challenge for the regulator is how they shepherd those master trusts looking to exit in an orderly manner so as to not disadvantage members."
The new rules for master trusts, which are expected to come into force in October, were first announced in 2016.
The government also launched a consultation on the regulations, which closes on 12 January.
maria.espadinha@ft.com
