The Pensions Regulator (TPR) has revealed details on how scheme providers can be ousted from the market in case of severe detriment to members, in its supervision and enforcement policy of master trusts published today (26 July).
The watchdog wants to be given powers to be able to make a decision on removing a scheme from the market without informing the persons directly affected by it.
This would be classed as special procedure, "where a quick decision is needed to protect members or assets," TPR said.
The persons directly affected by the decision would only be informed after a determination notice and order has been issued by the regulator’s determinations panel.
This is then followed by a compulsory review of the determination, involving the directly affected persons. The determinations panel then makes a final determination in a final notice.
TPR launched a consultation on these proposals today.
However, the special procedure would only be used if certain statutory criteria are met, the regulator said.
In most cases, a standard procedure – with the issuance of a warning notice - will apply, where TPR seeks to withdraw authorisation from a scheme.
Both processes can be appealed by the interested parties.
The watchdog's new rules for these schemes, which have now 10 million members due to auto-enrolment, are a consequence of the new master trust authorisation regime, which launches in October this year.
Under the new registration process, master trusts will have to hold enough capital to cover the cost of a worst-case scenario, such as the cost of transferring to another scheme or of winding up, without charging members.
The government and the regulator have been discussing these new rules since 2016, which are expected to drive consolidation in the market.
Schemes will have six months to apply to TPR to continue to operate in the market.
From the current 81 schemes in the market, 40 to 45 are expected to submit a formal application in October.
About 20 workplace pension providers won't apply for formal authorisation, it was revealed last week.
Schemes, which achieve authorisation, will then be supervised by TPR on an ongoing basis, to ensure that they continue to meet the authorisation criteria as well as other relevant legislation and codes of practice.
The regulator said in the first year of the authorisation regime, "additional supervision will be primarily driven by the impact of the master trust on the market, including the volume of members in the scheme".
New master trusts "can expect to receive a higher level of supervision than those who are more established, because they will not have an operational track record," TPR added.
According to Kim Brown, head of master trust authorisation and supervision at TPR, "authorisation will create a market with better safeguards".
She said: "To do that we need to set the standards which every master trust must meet to operate once they have been authorised, or set up in the market.
"We will also supervise these schemes to ensure that they continue to meet the authorisation criteria, are well-run and offer good value for members.
"Our policy outlines how we will be collaborative in supervising schemes, but tough to use our powers, including de-authorising schemes, if they drop below the standards outlined in legislation."
Malcolm McLean, senior consultant at Barnett Waddingham, welcomed TPR’s draft policy, saying it showed the regulator "doesn’t intend to rest on its laurels after the initial authorisation programme is complete, and will continue to monitor 'approved' master trusts to ensure they are well-run and offer good value for members."
He said: "There has rightly been concern that to date master trusts have escaped significant regulatory scrutiny despite their surge in usage under automatic enrolment, and clearly this needed to change.
"Now, nearly six years on from the AE rollout, we appear to have both an authorisation and a supervision regime that will aim to ensure these schemes are at least fit for purpose.
"I am sure there will be a few teething problems in all of this which it may be possible to iron out during the consultation period. It is after all only a draft policy document at this stage and as it is a new area of TPR activity that it will have to find its feet on."
maria.espadinha@ft.com
