The Pensions Regulator (TPR) has said some of the criticism levelled at the new authorisation regime for master trusts "stems from a misunderstanding of the way the reserves can be calculated".
Speaking to FTAdviser, Kim Brown, head of master trusts at TPR, said: "So we’ve introduced two methods: you can either calculate your reserves according to the basic method, which has a per member cost, or you can use the detailed method, and the detailed method is more scheme-specific and the costs relating to how that trust operates.
"What some have done is calculate the largest master trust funding reserves based on the basic method, so the per member cost, which can look very large.
"What we’ve seen is the larger schemes can typically produce economies of scale and costs are reduced, the larger the scheme. As such, they’re more likely to use the detailed methodology."
The new rules have been under discussion between the government and the regulator since 2016, with authorisation applications due to open on 1 October.
"Authorisation has been introduced to ensure there’s increased protections for members saving into master trusts," said Ms Brown.
"And one of the criteria is a scheme showing it is financially sustainable and, as part of that, reserving sufficient financials so that should an event, such as the wind-up of a scheme occur, costs aren’t borne by members, they’re sufficiently covered by the trusts themselves."
The pension watchdog published figures earlier this week (5 September) which showed four additional master trusts had decided not to apply for authorisation, meaning the number of master trusts which will leave the market has increased to 24.
But Ms Brown insisted: "The purpose of authorisation is to increase the safeguards for members – the 10 million members saving into master trusts.
"So it was always expected that there would be consolidation and we have seen that happen in the marketplace."
She said some were still deciding whether to apply or to exit.
"What we’ve seen is there’s an active consolidation market, with a diverse number of master trusts actively looking to take on exiting master trusts," Ms Brown added.
Watch the full video interview at the top of the page.