The Pensions Regulator has already found some master trusts used by workplace pension schemes are choosing to drop out of the market rather than comply with the new authorisation regime, which will come into force in October.
The watchdog published today (27 March) its code of practice for master trust authorisation, alongside a consultation.
The code outlines how these workplace schemes will be expected to meet the new authorisation criteria and what they will need to evidence for TPR to grant authorisation and to continue to operate in the workplace pensions market.
However Kim Brown, head of master trust authorisation and supervision at the regulator, argued that the “whole reason for authorisation is to drive up the standards in the market”.
She said: “That’s likely to result in a reduction in those operating in the market, either because they decide not to apply for authorisation, or because they fail to meet the criteria.
“We have seen some of that to date, and it’s really important that we engage with those schemes to ensure that members are protected when being transferred to an alternative arrangement, and the employers have information to continue to meet their auto-enrolment duties.”
The Department for Work & Pensions (DWP) last week published its response to the consultation on the new rules, and revealed a registration fees cut for existing master trusts by more than a third, after several providers questioned its calculation method.
When applying for authorisation, a master trust will have to provide evidence to the regulator in five areas to stay in the market: Fit and proper persons, financial sustainability, scheme funder, systems and processes and continuity strategy.
The size of the market has grown since the launch of auto-enrolment – from 270,000 members in 2010 to nearly 10 million people today with £16bn of savings.
There are 81 master trust pension schemes according to the latest report from the regulator.
Further details on the rules will be published by TPR in the beginning of April, on a guidance document.
The consultation about the code of practice will run until May 8.
Authorisation will commence on October 1 and existing schemes will have six months from that date to apply to for authorisation.
However, master trusts can start submitting voluntary applications for the new registration regime as soon as May.
According to Graham Peacock, managing director of Salvus Master Trust, “there aren’t any real surprises” in TPR’s code, which is positive in his opinion.
He said: “The code has answered most of my questions, it has given a great deal more structure to the statutory instrument that we have seen from DWP.
“The main point of clarity is that is the trustees that have to make this submission, it wasn't clear who was applying for authorisation. I very much welcome that, because the trustees are already on the register with TPR.”