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Regulator expects master trust market to shrink in half

Regulator expects master trust market to shrink in half

The Pensions Regulator is predicting the master trust market will shrink to some 50 schemes after the authorisation regime starts in October.

This is a 43 per cent reduction, when compared to the 83 workplace schemes registered with the watchdog.

Speaking at the Association of Member-Directed Pension Schemes (AMPS) conference yesterday (22 May) in London, Anthony Raymond, executive director of regulatory policy at the regulator, said it is impossible to know how many master trusts will come out at the end of the authorisation process, because this is subject to the scheme applications.

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However, the watchdog is estimating that it will be in the range of around 50 schemes, he revealed.

FTAdviser reported earlier this month that one in 10 master trusts are looking to exit the market.

Under the new regulations coming into the market, master trusts will have to hold enough capital to cover 'worst-case scenario' costs.

This would include transferring pension members to another scheme or of winding up, without charging members. 

So providers currently have a window of seven months in which some schemes are looking to sell their business or merge with bigger players.

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.

Two deals were completed last month, with Salvus acquiring Complete, and The People's Pension announcing a merger with Your Workplace Pension.

The government and the regulator have been discussing these new rules since 2016.

Authorisation will commence on 1 October and existing schemes will have six months from that date to apply to for authorisation.

Mr Raymond said: “If master trusts don't intend to apply, we have been and will continue to work with them, to wind up and exit the market, making sure that members are safely transferred to another master trust and employers using such schemes continue to fulfil their automatic enrolment duties.

“Those running master trusts have generally been open and collaborative throughout this process, and most are already working hard to prepare for authorisation.”

However, master trusts can start submitting voluntary applications for the new registration regime as soon as May.

He added: “In September, we plan to share general lessons we have learned across the market, from draft applications, to support every master trust in their application for authorisation.”

Alan Chan, a chartered financial planner with IFS Wealth & Pensions, said: "I am of the view that consolidation in the master trust market is a good thing to a large extent. With larger funds under administration it should bring about greater economies of scale and therefore potentially lower charges for the scheme members."

maria.espadinha@ft.com