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.
In an impact assessment published alongside the consultation document on master trust reform, the government stated it believed there were about 87 master trusts operating in 2017, which could shrink to 57 following the introduction of the new rules.
The consolidation would be largely due to some schemes not seeking authorisation whereas others will not meet the criteria.
It could also be aided by additional rules making it easier for schemes to bulk transfer clients into other defined contribution schemes without their permission.
In the hypothetical scenario of no reform the number of trusts had been expected to fall to about 70, the document stated.
The forecast relied on data provided by The Pensions Regulator.
The new master trust regulations are poised to come into force in October next year and will require all master trusts to become authorised and supervised by the regulator.
Details around the new authorisation rules are currently being consulted on and will be finalised after the consultation closes in January.
The change in regime will incur additional costs for the trusts as they will need to adapt their systems and pay for the authorisation as well as their continued supervision in the form of a regulatory levy.
In addition, the regime will introduce new capital adequacy rules to the sector to ensure members are protected in case of scheme failure.
The government stated: “The costs to business will depend on the number of master trusts that choose to remain in or enter the market.
“The impact of authorisation on the number of master trusts is not known. It is anticipated that some schemes will not seek authorisation and some will fail to meet the criteria and exit the market.
“This is assumed to reduce the number of master trusts further to around 57, although this will be heavily dependent on individual schemes reaction to the authorisation regime.”
As well as cost, there should be benefits under the new regime, the government stated, although it was not in a position as yet to give further details.
In its provisional assessment of the measure it estimated an annual cost to business of £2.7m and benefits of about £100,000.
Wider benefits for schemes would be greater confidence in the sector as a result of compulsory authorisation and reduced likelihood of master trust failure, according to the government.
There may also be a benefit to well-run schemes, as they may not be undercut by badly run competitors, the paper added.
In addition there may be savings for the regulator in future years by avoiding problems arising and safeguarding member benefits, the paper stated.
The key beneficiaries of the new rules however, will be the approximately 7.1 million scheme members, it added.
carmen.reichman@ft.com
