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Pension schemes warned they could be breaking the law

Pension schemes warned they could be breaking the law

The Pensions Regulator (TPR) is warning pension schemes to check if they fall under the new master trust legislation, else they risk breaking the law.

Master trusts have until the end of March 2019 to either apply for authorisation with TPR and comply with the new rules or to exit the market altogether.

If they fail to do either by that deadline, they will be breaking the law, the watchdog warned.

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Under the new rules master trusts will need to hold enough capital to cover 'worst-case scenario' costs such as transferring pension members to another scheme or winding up without charging members.

The regulator has launched a step-by-step guide for schemes to check if they are a master trust, to help schemes which may not know they fall within the definition.

Insurance companies and pension providers have previously been urged to check whether their legacy schemes fall under the scope of the new regulations.

Cluster schemes, for instance, which are plans where the same company provides insurance, administration and trustee services, are not classed as master trusts by the Department for Work and Pensions but they could nevertheless be caught under the new regulation umbrella.

According to Nicola Parish, executive director for frontline regulation at TPR, from April 2019 any master trust operating without authorisation will have to close and transfer members to another scheme.

She said: "It’s really important that scheme trustees use our guide and seek additional advice if they need to, or they could find themselves being forced to wind up in four months’ time.

"From April 2019, for schemes which already exist in the market and haven’t applied for authorisation, there is no appeal process, no opportunity to file an application - no other option than to wind up.

"We have been working with schemes we think meet the definition of a master trust, but trustees will always know their structure best, and it is their responsibility to check whether their scheme is a master trust."

In total, 90 master trusts have been identified in the market, from which three have exited and 32 have triggered their exit.

But as FTAdviser reported yesterday only one of the remaining 55 workplace schemes in line for authorisation has applied since the window opened two months ago.