Master trust members face year of limbo

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Master trust members face year of limbo

Members of master trusts and financial advisers wishing to recommend a workplace scheme to their clients face a one-year ‘limbo’.

The Department for Work & Pensions (DWP) published yesterday (30 November) draft regulations on new rules for these workplace schemes, which will include a compulsory authorisation regime.

The paper estimated a one-year period to complete the registration process of these schemes and the assessment from the regulator on the existing ones.

According to a document seen by FTAdviser, the DWP is expecting the new rules to come into force in October.

Existing schemes will then have six months to complete the registration process, and those who haven’t done so will be notified they need to wind up by March 2019.

The Pensions Regulator is then expected to complete its assessment of these schemes by October 2019.

Nobody’s savings should be less secure simply because of the pension chosen by their employer.Guy Opperman

Graham Peacock, managing director of Salvus Master Trust, told FTAdviser this will leave the sector in a "limbo for a year".

He said: "We will not know which ones [master trusts] are staying and which ones are leaving. It will be very difficult for employers to choose a scheme to enrol their employees in and for financial advisers to give recommendations on which master trust to choose."

According to Mr Peacock, it is up to the existing schemes to deliver the message that they are in the market to stay.

However, Alan Chan, director and chartered financial planner at London-based IFS Wealth & Pensions, believes this will not be an issue for the majority of advisers "because it should be flagged up as part of their due diligence".

He said: "Master trusts are also not the only schemes available for workplace pensions, so if in any doubt, an adviser could also use pension schemes provided by the traditional insurance companies in this market."

Besides the registration process, which will cost up to £67,000 for existing schemes and up to £24,000 for new entrants – a fee to be charged at the regulator's discretion – master trusts will also have to comply with new capital adequacy rules to ensure members are protected in case of scheme failure.

The rules published by the DWP stated that master trusts will have to submit business plans to the regulator, and prove that the scheme has a "sound business strategy".

Companies will also have to show that there are sufficient financial resources to meet the costs of setting up and running the scheme, and the cost of resolving an event that could have a significant impact on its ability to operate, which could include the associated costs of winding up the scheme.

However, the granular details of these rules will only be detailed in The Pensions Regulator draft code, after the DWP regulations get Parliamentary approval.

According to the government’s proposed timeline, this is only expected in March, which gives schemes six months to comply until the new rules come into force.

Mr Peacock said that this is "an impossible situation".

He said: "I need to go way beyond this consultation [when submitting my response] and go into the impact that I think the loose wording of the document will have."

Claire Altman, head of finance at workplace pension provider Smart Pension, has an opposite view on this matter.

She said: "More of the detail will be in the code. They are dealing with widely differing organisations and trying to keep it proportionate and practical for all.

"I would rather they get it right and it takes a few weeks longer than they introduce hasty badly drawn requirements - considering that some master trusts will need to exit the market as a consequence."

According to an impact assessment published by the DWP alongside the draft legislation, the government is expecting the number of master trusts operating in the market following the new compulsory authorisation regime to fall by about 34 per cent.

Guy Opperman, minister for pensions and financial inclusion, argued that the majority of master trusts "are operating well, but for too long these schemes have been subject to far less regulatory scrutiny than new contract-based providers."

He said: "Nobody’s savings should be less secure simply because of the pension chosen by their employer.

"That is why the new authorisation and supervision regime is a significant step forward in bringing master trusts and other occupational schemes into line.

"These strict new tests will ensure current and future master trusts are strong, safe and well placed for consumers and employers to invest their pension contributions."

maria.espadinha@ft.com