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.
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.