Defined BenefitJun 6 2018

Regulator looks to apply master trust authorisation to DB superfunds

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Regulator looks to apply master trust authorisation to DB superfunds

The Pensions Regulator (TPR) could apply the master trust authorisation regime to the new defined benefit (DB) pension consolidators coming into the market.

Lesley Titcomb, The Pensions Regulator’s chief executive, told FTAdviser that she believes the watchdog should be in charge of approving the new defined benefit superfunds coming into the market, and that it is working with the Department for Work & Pensions (DWP) on this topic.

In its defined benefit (DB) white paper, the government revealed plans to promote consolidation in the defined benefit pension market, in which two thirds of the 5,600 schemes have funding shortfalls.

FTAdviser previously reported that consolidation was a top priority for the DWP, which has been having discussions with the industry on this topic.

Ms Titcomb argued that one of the main issues that DWP will consult on is the appropriate authorisation regime for DB consolidation vehicles.

She said that in broad terms, the master trust regime could be applied to these new funds.

She said: "When the criteria were set for the authorisation of master trusts, they were done in a way that reflects a fairly generic set of criteria, and then we have put more specificity through the regulations and our consultation.

“I think exactly the same thing could apply with the DB consolidators, except of course you would see different financial resources tests.”

Authorisation of master trusts will commence on 1 October, and these schemes 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.

Under the new regulations, master trusts will have to hold enough capital to cover 'worst-case scenario' costs, and will have to pay a registration fee.

The Pensions and Lifetime Savings Association (PLSA) has argued that the new regulatory regime for superfunds "must be extremely robust, in line with – or possibly more stringent than – the recent authorisation regime” introduced for master trusts.

In its submission to the Work & Pensions select committee inquiry on the defined benefit white paper, the industry body recommended that both the sponsor and trustees operating a superfund would need explicit authorisation from The Pensions Regulator.

In the PLSA’s view, the pension consolidator would need to satisfy the regulator that the people involved with the superfund are fit and proper; it is financially sustainable, with the sponsor having sufficient assets to support the operation of the superfund; it has adequate skill, systems and processes to ensure it is managed effectively; and it has an adequate continuity strategy and sufficient capital.